NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded five classes of Lehman Brothers-UBS (LB-UBS) Commercial Mortgage Trust commercial mortgage pass-through certificates, series 2001-C3. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades reflect an increase in Fitch modeled losses on the remaining pool, particularly on the Vista Ridge Mall (63% of the pool), the largest loan in the pool. The increase in losses is largely due to performance declines since Fitch's previous rating action. Fitch modeled losses of 23.1% of the remaining pool; expected losses on the original pool balance total 5.51%. The pool has experienced $50.1 million (3.6% of the original pool balance) in realized losses to date. Fitch has designated six loans (97.6%) as Fitch Loans of Concern, which includes four specially serviced assets (31.6%).
As of the March 2014 distribution date, the pool's aggregate principal balance has been reduced by 91.9% to $112 million from $1.38 billion at issuance. The pool has become extremely concentrated with only seven of the original 169 loans remaining in the transaction, one of which (2.4%) is defeased. Interest shortfalls are currently affecting classes J through Q.
Given the pool's concentration, Fitch applied higher net operating income and capitalization rate stresses in the analysis. A high default probability scenario was also applied on the performing loans.
RATING SENSITIVITIES
The ratings on class C and D are expected to remain stable due to sufficient credit enhancement to offset future Fitch expected losses. Although recovery prospects remain high, classes C and D may be subjected to future interest shortfalls should the Vista Ridge Mall loan (63% of the pool) default. In addition to performance concerns on the Vista Ridge Mall, the Negative Outlooks on classes E, F, and G reflect the loan concentration and adverse selection of the remaining pool, with four out of the seven remaining loans currently in special servicing with limited near term resolutions. Classes E, F, and G may be subjected to further rating downgrades should expected losses increase.
The largest contributor to expected losses is the Vista Ridge Mall loan (63%), the largest remaining loan, which is secured by a 1.1 million square foot (sf) mall located in Lewisville, TX. Anchor tenants include Dillard's, Macy's, Sears, JC Penney, and Cinemark Theaters. Despite occupancy reporting at 97% for September 2013, the net operating income (NOI) debt service coverage ratio (DSCR) has declined to 0.98x, compared to 1.06x at year end (YE) 2012 and 1.10x at YE 2011. The property has experienced steady NOI declines since 2009 due to a decrease in base rents and revenues, stemming from unfavorable conversion to percentage rents from base rents for several tenants. Inline tenant sales had declined in 2013 to $236 per square foot (psf) from $249 psf in 2012. The loan's maturity date was extended to April 2016, after it had transferred to special servicing in 2009 and was subsequently modified and returned back to master servicing in 2010. The loan, which is currently in full cash trap due to the low DSCR, remains current as of the April 2014 remittance date. The loan sponsor is Rouse Properties.
The next largest contributor to expected losses is the specially-serviced Park Central loan (24.5%), the second largest loan in the pool, which is secured by a 331,866 sf office property comprised of seven, one-story buildings in Phoenix, AZ. The subject loan has been in and out of special servicing since 2010 for payment default, and became real estate owned (REO) in May 2012. The servicer continues to stabilize the property. The servicer reports current occupancy at 71%.
The third largest contributor to expected losses is secured by a 100,368 sf industrial property located in Dewitt, NY. The loan had transferred to special servicing in January 2011 due to payment default. A receiver was put in place in March 2012, and the property became REO in August 2013. The servicer reported occupancy at 100% as of September 2013; however, NOI reported negative due to nonpayment of rent by the property's largest tenant.
Fitch downgrades and revises Rating Outlooks to the following classes as indicated:
--$13.4 million class C to 'Asf' from 'AAAsf'; Outlook to Stable from Negative;
--$16 million class D to 'Asf' from 'AAAsf'; Outlook to Stable from Negative;
--$18 million class E to 'BBBsf' from 'Asf'; Outlook Negative;
--$18 million class F to 'BBB-sf' from 'BBBsf'; Outlook Negative;
--$12.1 million class G to 'Bsf' from 'BBsf'; Outlook Negative.
The class A-1, A-2 and B certificates have paid in full. Fitch does not rate the class H, J, K, L, M, N, P and Q certificates. Fitch previously withdrew the rating on the interest-only class X certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826532
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