NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded three classes and affirmed 12 classes of LB-UBS Commercial Mortgage Trust (LB-UBS) commercial mortgage pass-through certificates series 2005-C2. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades are due to the increased certainty of losses to the already distressed classes. Fitch modeled losses of 17.3% of the remaining pool; expected losses on the original pool balance total 11.5%, including $47.2 million (2.4% of the original pool balance) in realized losses to date. Fitch has designated 19 loans (37.2%) as Fitch Loans of Concern, which includes five specially serviced assets (2.6%). Fitch's three largest drivers of loss expectations remain in line with the last rating action. The loans have all been modified into A/B note structures; in all cases, Fitch is modeling some recovery on the A note and a full loss on the B note.
Rating Outlooks on classes A-4, A-AB, and A-5 remain Stable due to sufficient credit enhancement, continued paydown and expected payoff from defeasance. The Negative Outlooks on classes A-J, B and C reflect Fitch's concern over the underperformance of several modified loans, in addition to concentration concerns of upcoming loan maturities over the next 12 months. Classes A-J, B and C may be subject to negative rating actions should realized losses be greater than Fitch's expectations. Fitch will continue to monitor the changing collateral as 77.3% of the pool is maturing the next eight months.
As of the July 2014 distribution date, the pool's aggregate principal balance has been reduced by 47.8% to $1.01 billion from $1.94 billion at issuance. Per the servicer reporting, 14 loans (33.1% of the pool) are defeased. Interest shortfalls are currently affecting classes D through S.
The largest contributor to expected losses is the Woodbury Office Portfolio II (14.6% of the pool) which is secured by 22 office properties totaling 1.1 million square feet (sf) located in Long Island, NY. Occupancy has remained relatively flat over the past 12-months, reporting at 73% as of June 2014, compared to 75% in March 2013. Net operating income (NOI) however has declined due to lower base rental revenues from renewed leases, with NOI debt service coverage ratio (DSCR) reported at 0.80x for year to date (YTD) March 2014, compared to 1.18x at year end (YE) 2013 and 1.24x at YE 2012. The June 2014 rent roll reported $3.17 million of rental abatements currently in-place as well as annual rent steps for most of the leases.
The original $163.6 million loan had transferred to special servicing in January 2010 for imminent default. The loan was modified in August 2011 while in special servicing. Terms of the modification included an extension to the original loan term and bifurcation of the loan into a senior ($104.5 million) and junior ($51.4 million) interest-only component; the senior A-note has since paid down to $96.4 million. Any recovery to the subject B-note is contingent upon full recovery to the A-note proceeds at the loan's maturity in December 2015.
The next largest contributor to expected losses is Park 80 West (9.86%) which is secured by a two-building, 505,000 sf office complex located in Saddle Brook, NJ. The June 2014 rent roll reported occupancy at 70%, compared to 72% in December 2013 and 72% in January 2012. The NOI DSCR has declined 0.78x as of YE December 2013 from 1.15x at YE 2012. Part of the NOI decline is due to a non-recurring $1.5 million real estate tax reimbursement recorded in 2012. In addition, the NOI decline is attributed to significant lease renewals at reduced rents, as well as rent concessions on renewed and newly signed leases. Renewed leases include New York Life (5.1% of the net rentable area [NRA]) which further extended its lease to March 2024 after previously extending to 2018 from 2012 at a reduced rate with rent concessions; CB Richard Ellis (5.1% NRA) which extended its lease to August 2024 from March 2014 at a reduced rate; and Assigned Risk Solutions (fka JBA Associates; 5.2% NRA) which extended to November 2019 from 2014 at a reduced rate. The majority of leases include rent steps.
The original $100 million loan transferred to special servicing in December 2009 due to imminent default. The loan was modified in March 2012 while in special servicing. Terms of the modification included a bifurcation of the loan into a senior ($72 million) and junior ($28 million) component. Although losses are not expected imminently, any recovery to the subject B-note is contingent upon full recovery to the A-note proceeds at the loan's maturity in February 2015.
The next largest contributor to expected losses is the Woodbury Office Portfolio I (6.26%) which is secured by 10 office properties containing approximately 480,000 sf, located in Long Island, NY. Occupancy declined to 74% as of March 2014 from 90% in December 2013, after seeing steady increases from 81% in December 2012 and 60% in March 2012. As a result NOI has significantly declined to 1.07x as of March 2014, after increasing to 1.51x for YE 2013 from 0.92x for YE 2012. The June 2014 rent roll reported $2.2 million of rental abatements currently in-place as well as annual rent steps for most of the leases. The portfolio is exposed to rollover risk with leases for approximately 33% NRA scheduled to expire by December 2015.
The original $63.5 million loan had transferred to special servicing in January 2010 when the borrower had requested a modification of the loan terms, including an extension of the April 2010 maturity date; the loan matured in April 2010 without repayment. The loan was modified in August 2011 while in special servicing. Terms of the modification included an extension to the original loan term and bifurcation of the loan into a senior ($35.5 million) and junior ($28 million) component. Although losses are not expected imminently, any recovery to the subject B-note is contingent upon full recovery to the A-note proceeds at the loan's maturity in December 2015.
Fitch downgrades the following classes as indicated:
--$38.9 million class D to 'CCsf' from 'CCCsf'; RE 15%;
--$41.4 million class E to 'Csf' from 'CCsf'; RE 0%;
--$17 million class F to 'Csf' from 'CCsf'; RE 0%;
Fitch affirms the following classes:
--$193 million class A-4 at 'AAAsf'; Outlook Stable;
--$9.1 million class A-AB at 'AAAsf'; Outlook Stable;
--$470.7 million class A-5 at 'AAAsf'; Outlook Stable;
--$121.7 million class A-J at 'BBBsf'; Outlook Negative;
--$13.9 million class B at 'BBB-sf'; Outlook Negative;
--$29.2 million class C at 'Bsf'; Outlook Negative.
--$17 million class G at 'Csf'; RE 0%;
--$17 million class H at 'Csf'; RE 0%;
--$29.2 million class J at 'Csf'; RE 0%;
--$16.1 million class K at 'Dsf'; RE 0%;
--$0 class L at 'Dsf'; RE 0%;
--$0 class M at 'Dsf'; RE 0%.
The class A-1, A-2 and A-3 certificates have paid in full. Fitch does not rate the class N, P, Q and S certificates. Fitch previously withdrew the ratings on the interest-only class X-CP and X-CL 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' (Aug. 4, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria