Approximately $152.97 Million of Structured Securities Affected
New York, October 28, 2010 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes,
downgraded three classes and affirmed three classes of LB Commercial Mortgage
Trust, Commercial Mortgage Pass-Through Certificates,
Series 1999-C1 as follows:
Cl. X, Affirmed at Aaa (sf); previously on Jun 10,
1999 Definitive Rating Assigned Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on May 28,
2009 Upgraded to Aaa (sf)
Cl. E, Upgraded to Aaa (sf); previously on May 28,
2009 Upgraded to Aa3 (sf)
Cl. F, Upgraded to Baa1 (sf); previously on May 16,
2006 Upgraded to Baa3 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Jun 10,
1999 Definitive Rating Assigned Ba2 (sf)
Cl. H, Downgraded to Caa2 (sf); previously on May 28,
2009 Downgraded to B1 (sf)
Cl. J, Downgraded to C (sf); previously on May 28,
2009 Downgraded to Ca (sf)
Cl. K, Downgraded to C (sf); previously on Feb 19,
2008 Downgraded to Ca (sf)
The upgrades are due to the significant increase in subordination due
to loan payoffs and amortization and the pool's high exposure to
defeased loans, which represent 18% of the current pool balance.
The pool has paid down ny 52% since Moody's prior review.
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans, a decline in loan diversity, as measured by the Herfindahl
Index (Herf), and concerns about loans approaching maturity in an
adverse environment. Ten loans, representing 23% of
the pool, either have matured or mature within the next six months.
Eight of these loans, representing 20% of the pool,
are in special servicing.
The affirmations are due to stable overall performance of the performing
portion of the pool and increased subordination levels which are sufficient
for the current ratings.
Moody's rating action reflects a cumulative base expected loss of
17.9% of the current balance. At last review,
Moody's cumulative base expected loss was 9.2%.
Moody's stressed scenario loss is 18.4% of the current
balance. Moody's provides a current list of base and stress
scenario losses for conduit and fusion CMBS transactions on moodys.com
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these
expectations. Performance that falls outside an acceptable range
of the key parameters may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated during
the current review. Even so, deviation from the expected
range will not necessarily result in a rating action. There may
be mitigating or offsetting factors to an improvement or decline in collateral
performance, such as increased subordination levels due to amortization
and loan payoffs or a decline in subordination due to realized losses.
Primary sources of assumption uncertainty are the current stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2010
and 2011; we expect overall a sluggish recovery in most of the world's
largest economies, returning to trend growth rate with elevated
fiscal deficits and persistent unemployment levels.
The principal methodologies used in rating LB Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 1999-C1
were "CMBS: Moody's Approach to Rating Fusion Transactions" published
in April 2005 and "CMBS: Moody's Approach to Rating
Large Loan/Single Borrower Transactions" published in July 2000.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
In addition to methodologies and research available on moodys.com,
Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.50 which is used for both conduit and fusion
transactions as well as the excel-based CMBS Large Loan Model v.
8.0 which is used for Large Loan transactions. Conduit model
results at the Aa2 level are driven by property type, Moody's
actual and stressed DSCR, and Moody's property quality grade
(which reflects the capitalization rate used by Moody's to estimate
Moody's value). Conduit model results at the B2 level are
driven by a paydown analysis based on the individual loan level Moody's
LTV ratio. Moody's Herfindahl score (Herf), a measure
of loan level diversity, is a primary determinant of pool level
diversity and has a greater impact on senior certificates. Other
concentrations and correlations may be considered in our analysis.
Based on the model pooled credit enhancement levels at Aa2 and B2,
the remaining conduit classes are either interpolated between these two
data points or determined based on a multiple or ratio of either of these
two data points. For fusion deals, the credit enhancement
for loans with investment-grade credit estimates is melded with
the conduit model credit enhancement into an overall model result.
Fusion loan credit enhancement is based on the underlying rating of the
loan which corresponds to a range of credit enhancement levels.
Actual fusion credit enhancement levels are selected based on loan level
diversity, pool leverage and other concentrations and correlations
within the pool. Negative pooling, or adding credit enhancement
at the underlying rating level, is incorporated for loans with similar
credit estimates in the same transaction.
Moody's uses a variation of Herf to measure diversity of loan size,
where a higher number represents greater diversity. Loan concentration
has an important bearing on potential rating volatility, including
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 12
compared to 8 at Moody's prior review. In cases where the
Herf falls below 20, Moody's also employs the large loan/single
borrower methodology. This methodology uses the excel-based
Large Loan Model v 8.0 and then reconciles and weights the results
from the two models in formulating a rating recommendation. The
large loan model derives credit enhancement levels based on an aggregation
of adjusted loan level proceeds derived from Moody's loan level
LTV ratios. Major adjustments to determining proceeds include leverage,
loan structure, property type, and sponsorship. These
aggregated proceeds are then further adjusted for any pooling benefits
associated with loan level diversity, other concentrations and correlations.
Moody's ratings are determined by a committee process that considers
both quantitative and qualitative factors. Therefore, the
rating outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's prior full review
is summarized in a press release dated May 28, 2009. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
As of the October 15, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 90% to $152.97
million from $1.58 billion at securitization. The
Certificates are collateralized by 38 mortgage loans ranging in size from
less than 1% to 25% of the pool, with the top ten
non-defeased loans representing 62% of the pool.
The pool includes one loan, representing 25% of the pool,
with an investment grade credit estimate. Four loans, representing
18% of the pool, have defeased and are collateralized with
U.S. Government securities. Defeasance at last review
represented 8% of the pool.
Thirty-one loans have been liquidated from the pool, resulting
in an aggregate realized loss of $14.96 million (14%
loss severity on average). Due to realized losses, classes
M and L have been eliminated entirely and Class K has experienced a 29%
principal loss. Currently, 12 loans, representing 34%
of the pool, are in special servicing. The largest specially
serviced loan is the Wal-Mart Portfolio Loan ($17.6
million -- 11.5% of the pool), which is secured
by 13 multi-tenant retail centers located in seven Midwestern states.
The centers are shadow-anchored by either Wal-Mart or Sams
Club. The portfolio was 61% leased as of September 2009
compared to 65% at last review. The loan was transferred
to special servicing in April 2009 for imminent default. Negotiations
for a loan modification are currently underway.
The remaining 10 specially serviced loans are secured by a mix of property
types. The master servicer has recognized an aggregate $13.5
million appraisal reduction for nine of the specially serviced loans.
Moody's has estimated an aggregate $27.1 million loss
(52% expected loss on average) for the specially serviced loans.
Based on the most recent remittance statement, Classes K and J have
a cumulative interest shortfall totaling $1.1 million.
Moody's anticipates that the pool will continue to experience interest
shortfalls because of the high exposure to specially serviced loans.
Interest shortfalls are caused by special servicing fees, including
workout and liquidation fees, appraisal subordinate entitlement
reductions (ASERs) and extraordinary trust expenses.
Moody's was provided with full year 2008 and 2009 operating results
for 81% and 48% of the pool, respectively.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV for the conduit component is 76% compared to 83%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 11.8% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 9.7%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs for the conduit component are 1.06X and 1.45X,
respectively, compared to 1.18X and 1.39X at last
review. Moody's actual DSCR is based on Moody's net
cash flow (NCF) and the loan's actual debt service. Moody's
stressed DSCR is based on Moody's NCF and a 9.25%
stressed rate applied to the loan balance.
The loan with a credit estimate is the Crossroads Mall Loan ($38.6
million -- 25.2%), which is secured by the borrower's
interest in a 765,000 square foot regional mall located in Portage,
Michigan. The center is anchored by Macy's, Sears,
J.C. Penney, and Burlington Coat Factory. The
center was 97% leased as of December 2009 compared to 94%
at last review. The property is owned by an affiliate of GGP and
was included in GGP's April 16, 2009 bankruptcy filing. The
loan was subsequently transferred to special servicing but has since been
transferred back to the master servicer. Moody's credit estimate
and stressed DSCR are Aa2 and 2.46X, respectively,
compared to Aa2 and 2.55X at last review.
The largest performing conduit loan is the Kohl's Shopping Center Loan
($5.2 million -- 3.4%), which is
secured by a 100,000 square foot retail center located in suburban
Knoxville, Tennessee. The property was 100% leased
as of December 2008 with Kohl's Department Store occupying 86%
of the net rentable area (NRA) through February 2019. Moody's LTV
and stressed DSCR are 79% and 1.32X, respectively,
compared to 81% and 1.27X at last review.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Upgrades Two, Downgrades Three and Affirms Three CMBS Classes of LBCMT 1999-C1
250 Greenwich Street
New York, NY 10007