Approximately $46.8 Million of Structured Securities Affected
New York, January 13, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes,
downgraded two classes and affirmed two classes of LB Commercial Mortgage
Trust 1999-C2, Commercial Mortgage Pass-Through Certificates,
Series 1999-C2 as follows:
Cl. X, Affirmed at Aaa (sf); previously on Oct 13,
1999 Definitive Rating Assigned Aaa (sf)
Cl. F, Upgraded to Aaa (sf); previously on Feb 3,
2010 Upgraded to Aa2 (sf)
Cl. G, Upgraded to Aaa (sf); previously on Dec 21,
2006 Upgraded to Baa3 (sf)
Cl. H, Affirmed at Ba2 (sf); previously on Oct 13,
1999 Definitive Rating Assigned Ba2 (sf)
Cl. J, Downgraded to Caa1 (sf); previously on Feb 3,
2010 Downgraded to B2 (sf)
Cl. K, Downgraded to C (sf); previously on Feb 3,
2010 Downgraded to Caa2 (sf)
The upgrades are due to increased credit subordination levels resulting
from paydowns and amortization. The pool has paid down 39%
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 loans and interest shortfalls.
Moody's affirmed two classes because the current credit enhancement
levels for the affirmed classes are sufficient to maintain their current
ratings based on our current base expected loss.
Moody's rating action reflects a cumulative base expected loss of
11.8% of the current balance. Moody's stressed
scenario loss is 15.5% 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 at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
Due to the high level of credit subordination and defeasance, it
is unlikely that investment grade classes would be downgraded even if
losses are higher than Moody's expected base.
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 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 these ratings were: "CMBS:
Moody's Approach to Rating Large Loan/Single Borrower Transactions" published
in July 2000 and "CMBS: Moody's Approach to Rating Credit Tenant
Lease (CTL) Backed Transactions" published in October 1998.
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 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 9 compared
to 17 at Moody's prior review.
In cases where the Herf falls below 20, Moody's employs the
large loan/single borrower methodology. This methodology uses the
excel-based Large Loan Model v 8.0. 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.
For deals that include a pool of credit tenant loans, Moody's
currently uses a Gaussian copula model, incorporated in its public
CDO rating model CDOROMv2.6 to generate a portfolio loss distribution
to assess the ratings. Under Moody's CTL approach,
the rating of a transaction's certificates is primarily based on
the senior unsecured debt rating (or the corporate family rating) of the
tenant, usually an investment grade rated company, leasing
the real estate collateral supporting the bonds. This tenant's
credit rating is the key factor in determining the probability of default
on the underlying lease. The lease generally is "bondable",
which means it is an absolute net lease, yielding fixed rent paid
to the trust through a lock-box, sufficient under all circumstances
to pay in full all interest and principal of the loan. The leased
property should be owned by a bankruptcy-remote, special
purpose borrower, which grants a first lien mortgage and assignment
of rents to the securitization trust. The dark value of the collateral,
which assumes the property is vacant or "dark", is then
examined to determine a recovery rate upon a loan's default.
Moody's also considers the overall structure and legal integrity
of the transaction. The credit enhancement levels are melded with
the large loan model credit enhancement into an overall model result.
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 February 3, 2010.
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 December 15, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 95% to $46.9
million from $892.4 million at securitization. The
Certificates are collateralized by 20 mortgage loans ranging in size from
less than 1% to 19% of the pool, with the top ten
non-defeased loans representing 73% of the pool.
Twelve loans, representing 36% of the pool, are secured
by credit tenant leases (CTLs). The conduit component consists
of one performing loan, representing 19% of the pool,
and four specially serviced loans, representing 32% of the
pool. Three loans, representing 13% of the pool,
have defeased and are secured by U.S. Government securities.
At last review defeasance represented 8% of the pool balance
One loan, representing 19% of the pool, is on the master
servicer's watchlist. The watchlist includes loans which
meet certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of our
ongoing monitoring of a transaction, Moody's reviews the watchlist
to assess which loans have material issues that could impact performance.
Twenty-four loans have been liquidated from the pool, resulting
in an aggregate realized loss of $21.5 million (22%
loss severity on average). Due to realized losses, classes
L, M, N and P have been eliminated entirely and class K has
experienced a 1% principal loss. At Moody's prior
review the pool had experienced an aggregate $10.2 million
Four loans, representing 32% of the pool, are currently
in special servicing. The largest specially serviced loan is the
White Rock Marketplace Loan ($6.9 million - 15%
of the pool), which is secured by a 173,540 square foot retail
center located in Dallas, Texas. The loan was recently transferred
back to special servicing after a forbearance agreement expired and the
borrower was not able to refinance the loan. The property lost
its anchor grocery tenant in late 2008 and only a portion of that space
has been released. The property is approximately 73% leased.
The second largest specially serviced loan is the Hawk Ridge Apartments
Loan ($6.1 million -- 13% of the pool),
which is secured by 168-unit multifamily property located in Clemmons,
North Carolina. The property is real estate owned (REO).
The loan matured in August 2009 and the borrower was unable to refinance
The remaining two specially serviced loans are secured by a mix of property
types. The master servicer has recognized appraisal reductions
totaling $1.0 million for two of the specially serviced
loans. Moody's has estimated an aggregate $5.5
million loss (36% expected loss on average) for the specially serviced
Based on the most recent remittance statement, Classes P through
K have experienced cumulative interest shortfalls totaling $1.4
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), extraordinary trust expenses and non-advancing
by the master servicer based on a determination of non-recoverability.
The current pool includes only one performing conduit loan, the
Corona Market Place Loan ($8.9 million -- 18.9%
of the pool), which is secured by a 104,200 square foot unanchored
retail center located in Corona (Riverside County), California.
The property was 77% leased as of September 2010 compared to 93%
at last review. Property performance has declined due to increased
vacancy. The loan is on the master servicer watchlist. The
loan matures in June 2011. Moody's LTV and stressed DSCR
are 62% and 1.82X, respectively, compared to
52% and 2.18X 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 CTL component consists of 12 loans secured by properties leased to
five tenants. The largest exposures are CVS/Caremark Corp.
(Moody's senior unsecured rating Baa2 -- stable outlook;
70% of the CTL component), Rite Aid Corporation (Moody's
senior unsecured rating Caa3 -- stable outlook; 15%
of the CTL component), and Walgreen Corporation (Moody's senior
unsecured rating A2 -- stable outlook; 11% of
the CTL component). All of the tenants are rated by Moody's.
The bottom-dollar weighted average rating factor (WARF) for this
pool is 1,448 compared to 1,452 at last review. WARF
is a measure of the overall quality of a pool of diverse credits.
The bottom-dollar WARF is a measure of the default probability
within the pool.
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.
Asst Vice President - Analyst
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 Two and Affirms Two CMBS Classes of LBCMT 1999-C2
250 Greenwich Street
New York, NY 10007