Fitch Downgrades LBCMT 1996-C2; Assigns Recovery Ratings

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded and assigned Recovery Ratings (RR) to the following classes of LB Commercial Conduit Mortgage Trust II's (LBCMT) commercial pass-through certificates, series 1996-C2:

--$11.6 million class F to 'CC/RR3' from 'B';

--Interest-only class IO to 'CC' from 'AAA'.

In addition, Fitch affirms the following class:

--$0.2 million class G at 'D/RR6'.

Fitch does not rate class J, which has been reduced to zero due to losses. Classes A, B, C, D and E have been paid in full.

The downgrades of class IO and F to 'CC' reflect the high probability of default. Fitch expects losses of 2.9% of the remaining pool balance, approximately $0.3 million, from the loans that are not expected to refinance at maturity based on Fitch's refinance test.

To date, the transaction has incurred $29.5 million in losses, 7.4% of the original balance. As of the April 2010 distribution date, the pool has paid down 97% to $11.8 million from $397.2 million at issuance. Ten of the original 109 loans remain outstanding, none of which have defeased or are in special servicing. Fitch identified five Loans of Concern (33.8%) within the pool.

Fitch stressed the cash flow of the remaining loans by applying a 10% reduction to 2008 fiscal year end net operating income and applying an adjusted property specific market cap rate between 7.25% and 10% to determine value.

Similar to Fitch's prospective analysis of recent vintage commercial mortgage backed securities (CMBS), each loan also underwent a refinance test by applying an 8% interest rate and 30-year amortization schedule based on the stressed cash flow. Loans that could refinance to a debt service coverage ratio of 1.25 times or higher were considered to pay off at maturity. Two loans did not pay off at maturity and only one loan incurred a loss when compared to Fitch's stressed value.

Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 7, 2009 report, 'Surveillance Methodology for Recent Vintage U.S. CMBS,' which is available at 'www.fitchratings.com' under the following headers:

Structured Finance then CMBS then Criteria Reports

Additional information is available at www.fitchratings.com.

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