Approximately $646.3 million of Structured Securities affected
New York, August 16, 2012 -- Moody's Investors Service affirmed the ratings of eight classes and downgraded
eight classes of Wachovia Bank Commercial Mortgage Trust, Commercial
Mortgage Pass-Through Certificates, Series 2003-C7
as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Nov 6, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Nov 6, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Dec 21,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Dec 21,
2006 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aa2 (sf); previously on Aug 21,
2008 Upgraded to Aa2 (sf)
Cl. E, Downgraded to A3 (sf); previously on Aug 21,
2008 Upgraded to A1 (sf)
Cl. F, Downgraded to Ba1 (sf); previously on Aug 21,
2008 Upgraded to A3 (sf)
Cl. G, Downgraded to B1 (sf); previously on Nov 11,
2010 Downgraded to Baa3 (sf)
Cl. H, Downgraded to B3 (sf); previously on Nov 11,
2010 Downgraded to B1 (sf)
Cl. J, Downgraded to Caa2 (sf); previously on Nov 11,
2010 Downgraded to B3 (sf)
Cl. K, Downgraded to C (sf); previously on Nov 11,
2010 Downgraded to Caa3 (sf)
Cl. L, Downgraded to C (sf); previously on Nov 11,
2010 Downgraded to Ca (sf)
Cl. M, Downgraded to C (sf); previously on Nov 11,
2010 Downgraded to Ca (sf)
Cl. N, Affirmed at C (sf); previously on Nov 11,
2010 Downgraded to C (sf)
Cl. O, Affirmed at C (sf); previously on Nov 11,
2010 Downgraded to C (sf)
Cl. X-C, Affirmed at Ba3 (sf); previously on
Feb 22, 2012 Downgraded to Ba3 (sf)
RATINGS RATIONALE
The downgrades are due to higher realized and expected losses from specially
serviced and troubled loans.
The affirmations of the principal classes 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. The IO Class, Class X-C,
was affirmed since it is consistent with the expected credit performance
of its referenced classes.
Moody's rating action reflects a cumulative base expected loss of 9.7%
of the current balance compared to 5.4% at last review.
Base expected loss plus realized losses to date totals 6.9%
compared to 4.3% at last review. Moody's provides
a current list of base expected losses for conduit and fusion CMBS transactions
on moodys.com at http://v3.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 extent of the slowdown
in growth in the current macroeconomic environment and commercial real
estate property markets. While commercial real estate property
values are beginning to move in a positive direction, a consistent
upward trend will not be evident until the volume of investment activity
increases, distressed properties are cleared from the pipeline,
and job creation rebounds. The hotel and multifamily sectors continue
to show positive signs and improvements in the office sector continue
with minimal additions to supply. However, office demand
is closely tied to employment, where unemployment remains above
long-term averages and business confidence remains below long-term
averages. Performance in the retail sector has been mixed with
lackluster holiday sales driven by sales and promotions. Consumer
confidence remains low. Across all property sectors, the
availability of debt capital continues to improve with increased securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates. Moody's central global macroeconomic scenario
reflects: an overall downward revision of real growth forecasts
since last quarter, amidst ongoing and policy-induced banking
sector deleveraging leading to a tightening of bank lending standards
and credit contraction; financial market turmoil continuing to negatively
impact consumer and business confidence; persistently high unemployment
levels; and weak housing markets resulting in a further slowdown
in growth.
The methodologies used in this rating were "Moody's Approach to Rating
U.S. CMBS Conduit Transactions" published in September 2000,
and "Moody's Approach to Rating Structured Finance Interest-Only
Securities" published in February 2012. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
Moody's review incorporated the use of the excel-based CMBS Conduit
Model v 2.61 which is used for both conduit and fusion transactions.
Conduit model results at the Aa2 (sf) 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 (sf) level are driven by
a pay down 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 (sf) and B2 (sf), 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 assessments is melded with the conduit model credit enhancement
into an overall model result. Fusion loan credit enhancement is
based on the underlying credit assessment 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 assessments in the same
transaction.
The conduit model includes an IO calculator, which uses the following
inputs to calculate the proposed IO rating based on the published methodology:
original and current bond ratings and credit assessments; original
and current bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and the IO type corresponding
to an IO type as defined in the published methodology. The calculator
then returns a calculated IO rating based on both a target and mid-point.
For example, a target rating basis for a Baa3 (sf) rating is a 610
rating factor. The midpoint rating basis for a Baa3 (sf) rating
is 775 (i.e. the simple average of a Baa3 (sf) rating factor
of 610 and a Ba1 (sf) rating factor of 940). If the calculated
IO rating factor is 700, the CMBS IO calculator version 1.0
would provide both a Baa3 (sf) and Ba1 (sf) IO indication for consideration
by the rating committee.
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 34,
down from 35 at last review.
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 a review utilizing MOST®
(Moody's Surveillance Trends) Reports and a proprietary program that highlights
significant credit changes that have occurred in the last month as well
as cumulative changes since the last full transaction review. On
a periodic basis, Moody's also performs a full transaction
review that involves a rating committee and a press release. Moody's
prior transaction review is summarized in a press release dated September
29, 2011. Please see the ratings tab on the issuer / entity
page on moodys.com for the last rating action and the ratings history.
DEAL PERFORMANCE
Since the July 16, 2012 distribution date, two loans totalling
$9.2 million paid off. Including those two loan paydowns,
the transaction's aggregate certificate balance has decreased 35%
to $659.3 million from $1.01 billion at securitization.
The Certificates are now collateralized by 95 mortgage loans ranging in
size from less than 1% to 7% of the pool, with the
top ten loans, excluding defeasance, representing 34%
of the pool. Thirteen loans, representing 24% of the
pool, have defeased and are secured by U.S. government
securities. There are no loans with an investment grade credit
assessment.
There are twenty loans, representing 17% of the pool,
on the master servicer's watchlist, compared to seventeen loans,
representing 19% of the pool, at last review. 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.
Three loans have been liquidated from the pool since securitization resulting
in an aggregate realized loss totaling $5.8 million (average
loss severity of 1%). There are currently four loans,
representing 17% of the pool, in special servicing.
The largest specially serviced loan is the Regency Square Mall Loan ($42.8
million -- 6.5% of the pool), which represents
a 50% participation interest in an $85.7 million
first mortgage loan. The loan's sponsor is General Growth
Properties, Inc. and the mall collateral includes Belk and
J.C. Penney. Sears and Dillards own their stores
and are excluded from the loan's collateral. The loan was transferred
to special servicing in April 2012 due to imminent default. Moody's
has estimated an aggregate $48.6 million loss (44%
expected loss) for the four specially serviced loans.
Moody's has assumed a high default probability for seven poorly performing
loans representing 10% of the pool and has estimated a $9.3
million aggregate loss (15% expected loss based on a 50%
probability of default) from these troubled loans.
Moody's was provided with full year 2011 operating results for 92%
of the performing pool and partial year 2012 operating results for 50%
of the performing pool. Excluding specially serviced and troubled
loans, Moody's weighted average conduit LTV is 78% compared
to 81% at last full review. Moody's net cash flow reflects
a weighted average haircut of 10.9% to the most recently
available net operating income. Moody's value reflects a weighted
average capitalization rate of 9.0%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed conduit DSCRs are 1.78X and 1.30X, respectively,
compared to 1.47X and 1.24X, respectively, at
last full 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 10% of the pool
balance. The largest loan is the Hollywest at Western, LLP
Loan ($23.2 million -- 3.5%
of the pool), which is secured by a 120,000 SF grocery anchored
retail center (Hollywest Promenade) located in Los Angeles, California
and a 30,000 SF single tenant retail center (99 Cents Only Store)
located in Las Vegas, Nevada. Property financial performance
remains relatively stable. The loan also benefits from amortization.
Moody's LTV and stressed DSCR are 91% and 1.01X, respectively,
compared to 78% and 1.17X at last review.
The second largest loan is the Morrocroft Village Shopping Center Loan
($22.6 million -- 3.4% of the
pool), which is secured by the borrower's interest in a 120,000
SF strip shopping center located in Charlotte, North Carolina.
The center is anchored by Harris Teeter and Joseph A Bank. The
loan is currently on the watchlist due to the property's lower financial
and occupancy performance directly attributable to a formerly vacant Border's
Books store at this location. Moody's considers this loan to be
a potential default risk and has identified it as a troubled loan.
Moody's LTV and stressed DSCR are 138% and 0.66X,
respectively, compared to 156% and 0.59X at last review.
The third largest loan is the Falls Village Shopping Center Loan ($19.6
million -- 3.0% of the pool), which
is secured by an 182,000 SF anchored retail center located in Raleigh,
North Carolina. Anchor tenants include TJ Maxx, Home Goods
and Dollar Tree. Based on recent leasing efforts, property
performance is stabilizing and the loan benefits from amortization.
Moody's considers this loan to be a potential default risk and has identified
it as a troubled loan. Moody's LTV and stressed DSCR are 123%
and 0.79X, respectively, compared to 137% and
0.71X at last review.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the 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 received and took into account one or more third-party
assessments on the due diligence performed regarding the underlying assets
or financial instruments in this transaction and the assessments had a
neutral impact on the rating.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Gregory Reed
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael Gerdes
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms eight and downgrades eight CMBS classes of WBCMT 2003-C7
