Approximately $97.6 Million of Structured Securities Affected
New York, March 16, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes
and affirmed seven classes of LB-UBS Commercial Mortgage Trust
2000-C3, Commercial Mortgage Pass-Through Certificates,
Series 2000-C3 as follows:
Cl. X, Affirmed at Aaa (sf); previously on May 18,
2000 Definitive Rating Assigned Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Nov 7,
2006 Upgraded to Aaa (sf)
Cl. E, Upgraded to Aaa (sf); previously on Nov 7,
2006 Upgraded to Aa2 (sf)
Cl. F, Upgraded to Aa2 (sf); previously on Nov 7,
2006 Upgraded to A1 (sf)
Cl. G, Affirmed at A2 (sf); previously on May 12,
2010 Confirmed at A2 (sf)
Cl. H, Affirmed at B2 (sf); previously on May 12,
2010 Downgraded to B2 (sf)
Cl. J, Affirmed at Caa3 (sf); previously on May 12,
2010 Downgraded to Caa3 (sf)
Cl. K, Affirmed at C (sf); previously on May 12,
2010 Downgraded to C (sf)
Cl. L, Affirmed at C (sf); previously on May 12,
2010 Downgraded to C (sf)
RATINGS RATIONALE
The upgrades are due to increased credit subordination due to loan payoffs
and amortization and overall improved performance.
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio, Moody's stressed debt service coverage
ratio (DSCR) and the Herfindahl Index (Herf), remaining within acceptable
ranges. Based on our current base expected loss, the credit
enhancement levels for the affirmed classes are sufficient to maintain
their current ratings.
Moody's rating action reflects a cumulative base expected loss of
22% of the current balance. At last review, Moody's
cumulative base expected loss was 26%. Moody's stressed
scenario loss is 24% 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://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
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 sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011. The hotel and multifamily sectors are continuing
to show signs of recovery, while recovery in the office and retail
sectors will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodologies used in this rating were: "Moody's
Approach to Rating Fusion Transactions" published on April 19, 2005,
"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" dated October
2,1998..
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. 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 credit estimate 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 credit estimate 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 8 compared
to 10 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.
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 CDOROMv2.8 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.
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 12, 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
six months.
DEAL PERFORMANCE
As of the February 17, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 93% to $97.6
million from $1.3 billion at securitization. The
Certificates are collateralized by 18 mortgage loans ranging in size from
less than 1% to 24% of the pool, with the top ten
loans representing 87% of the pool. Two loans, representing
12% of the pool, have defeased and are secured by U.S.
Government securities. Defeasance at last review represented 5%
of the pool.
The pool includes a credit tenant lease (CTL) component, which represents
6% of the pool. The CTL's are supported by single
tenant, stand-alone retail buildings leased to CVS/Caremark
(senior unsecured rating Baa2, stable outlook; 3 loans) and
Walgreen Company (senior unsecured rating A2, stable outlook;
1 loan).
Three loans, representing 12% of the pool, are 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-six loans has been liquidated from the pool, resulting
in a realized loss of $18.5 million (18% loss severity).
Additionally, the pool has assumed a $10.6 million
principal write down on the 270 Peachtree Loan that is currently in special
servicing. At last review the pool had experienced a $5.4
million aggregate loss. Nine loans, representing 70%
of the pool, are in special servicing. The largest specially
serviced loan is the 270 Peachtree Loan ($23.0 million --
23.6% of the pool), which is secured by a 336,000
square office building located in downtown Atlanta, Georgia.
The loan was transferred to special servicing in November 2006 when the
building lost its largest tenant, Southern Company Service.
The special servicer and the borrower executed a modification to the loan
agreement in July 2010. Major terms of the modification include
an extension of the maturity date to July 2011 with a twelve month option
to extend, a $10.6 million write down of the loan
(conditional waiver given that the borrower does not trigger an event
of default), 3% interest only payments, and additional
capital infusion into the TI/LC reserve escrow. The borrower continues
to perform under the modified loan agreement.
The second largest specially serviced loan is the Five Points Plaza Loan
($11.6 million -- 11.8% of the pool),
which is secured by a 125,000 square foot office building located
in downtown Atlanta, Georgia. The loan was transferred to
special servicing in 2009 when the borrower was unable to secure financing
when its sole tenant, GSA-HUD would not commit to a long
term lease extension. Subsequent to the loan's transfer to
special servicing, GSA-HUD executed a short term lease extension
through July 2012. The loan became real estate owned (REO) in September
2009 and the servicer is currently marketing the property for disposition.
The remaining seven specially serviced loans are secured by a mix of office,
industrial, retail, self storage, and multifamily properties.
Moody's estimates a $19.0 million aggregate loss for all
the specially serviced loans (39% loss severity on average).
The special servicer has recognized an aggregate $13.4 million
appraisal reduction for four of the specially serviced loans.
Moody's was provided with full year 2009 operating results for 50%
of the pool. Excluding troubled loans, Moody's weighted
average LTV is 74% compared to 78% at Moody's prior
review. Moody's net cash flow reflects a weighted average
haircut of 9% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of
9.8%.
Excluding troubled loans, Moody's actual and stressed DSCRs
are 1.13X and 1.44X, respectively, compared
to 1.48X and 1.37X 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 top three performing conduit loans represent 12% of the pool
balance. The largest loan is the Mooresville Festival Shopping
Center Loan ($6.2 million -- 6.3% of
the pool) which is secured by a 160,000 square foot shopping center
located in a northern suburb of Charlotte in Mooresville, North
Carolina. The loan is an ARD loan with a final maturity of January
2030. The shopping center is anchored by Belk (not part of the
collateral), Kohl's, and Harris Teeter and was 96%
leased as of September 2010 compared to 99% at the prior review.
Moody's LTV and stressed DSCR are 71% and 1.53X, respectively,
compared to 77% and 1.37X at last review.
The second largest loan is the Valley Plaza Shopping Center Loan ($3.3
million -- 3.3% of the pool) which is secured by a
48,000 square foot shopping center located in Aurora, Colorado.
The loan is an ARD loan with a final maturity of January 2030.
The shopping center is located in a retail corridor of Aurora and shares
a parking lot with Target (not part of the collateral). The property
is anchored by Petco. The property was 85% leased as of
September 2010 compared to 64% at the prior review. Moody's
LTV and stressed DSCR are 99% and 1.01X, respectively,
compared to 110% and 0.91X at last review.
The third largest loan is The Whitney Hotel Loan ($2.1 million
-- 2.2% of the pool) which is secured by a 74 key,
three-star hotel located in Columbia, South Carolina.
The loan is an ARD loan with a final maturity of January 2030.
The hotel has one and two bedroom style suites and is located minutes
from the heart of Columbia's restaurant and entertainment district.
Performance has declined since last review. Moody's LTV and stressed
DSCR are 72% and 1.7X, respectively, compared
to 38% and 3.4X at last review.
REGULATORY DISCLOSURES
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
Analytics information.
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.
New York
Amit Rustgi
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Upgrades Two and Affirms Seven CMBS Classes of LB-UBS 2000-C3
