NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 16 classes of LB-UBS Commercial Mortgage Trust (LBUBS) commercial mortgage pass-through certificates series 2007-C2. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The affirmations reflect sufficient credit enhancement of the remaining classes relative to Fitch's expected losses. Fitch modeled losses of 4.8% of the remaining pool; expected losses on the original pool balance total 14.7%, including $426.5 million (12% of the original pool balance) in realized losses to date. Fitch has designated 28 loans (30.7%) as Fitch Loans of Concern, which includes three specially serviced assets (17.5%).
As of the August 2014 distribution date, the pool's aggregate principal balance has been reduced by 43.6% to $2.01 billion from $3.55 billion at issuance. Office properties account for 63.9% of the pool balance, with five loans (38.5%) secured by Washington DC metro office buildings. There is one defeased loan (1.0%). Interest shortfalls are currently affecting class A-J and classes K through T.
The largest specially serviced loan is secured by the Willis Tower (16.8% of the pool), the second largest loan in the pool. The 110 story, 3.7 million square foot (SF) landmark office tower (formerly known as the Sears Tower) transferred to special servicing in May 2014 after a borrower request for a loan modification due to significant anticipated capital costs associated with new leasing activity. The July 2014 rent roll reported occupancy at 82.4%, an increase from December 2012 at 75%. Net operating income (NOI) has been steady with year-end (YE) 2013 NOI debt service coverage ratio (DSCR) reporting at 1.70x for the senior notes, and 1.49x including the subordinate debt. However, due to the significant costs in tenant improvements and capital expenditures, property net cash flow (NCF) has been low, at 1.14x as of YE 2013 for the senior notes, and 0.99x including the junior piece. The borrower's request is being reviewed by the servicer to determine the best workout strategy going forward. According to the servicer, debt service payments are expected to remain current for the foreseeable future. Fitch did not apply modeled losses to the subject loan.
The largest contributor to expected losses is the Watergate 600 loan (6.6% of the pool) which is secured by a 12-story, 289,286 SF office building in Washington, DC. Occupancy has remained flat over the past year, reporting at 99% as of August 2014. The two major property tenants include Atlantic Media (65% net rentable area [NRA]) whose lease is through 2023, and Blank Rome LLP (29% NRA) whose lease expires in December 2018. The subject loan matures in April 2017. The YE December 2013 NOI DSCR was reported at 1.27x. The loan remains current as of the August 2014 payment date. Although Fitch calculated losses based on in-place cash flow and a stressed cap rate, losses may be mitigated given the strong location and stable performance of the asset.
The next largest contributor to expected losses are three loans secured by office buildings located in Louisville, KY (1.7%), McLeansville, NC (1.6%), and Meridian, ID (1.6%). All three properties are 100% leased to Citicorp North America. / Citigroup Inc. (rated 'A' by Fitch) through December 2019. The subject loans all mature in April 2017. The YE 2013 NOI DSCR was reported at 1.17x for the three loans since issuance. The loans remain current as of the August 2014 payment date. Fitch had further stressed the cap rates on the subject properties in its analysis due to the properties' single tenancy and tertiary office markets. Fitch had calculated losses based on in-place cash flow and stressed cap rates; however, losses may be mitigated due to the credit tenancy and lease expirations over 1.5 years past the loan maturities.
The next largest contributor to losses is the Delamar Hotel (1.8%), which is secured by an 82-room full service boutique hotel located in Greenwich, CT adjacent to the Greenwich Harbor boat docks. The property performance has seen positive trends since trending downwards in 2009 due to the sluggish economy. For YE December 2013, occupancy reported at 67%, ADR was $309, and RevPAR was $207.26, respectively, compared to 57.6%, $304.98, and $175.85 for YE 2010. The partial interest-only loan has been amortizing since March 2012. The YE December 2013 NOI DSCR reported at 1.16x, compared to 1.0x at YE 2012. The loan remains current as of the August 2014 payment date.
The Rating Outlooks on classes A-3 and A-1A are Stable due to sufficient credit enhancement and continued paydown. The Negative Outlook on class A-M reflects above-average loan concentration concerns, with the top two loans representing 37% of the pool and the top 15 loans representing 71.5%. Should actual losses exceed Fitch expectations the class may be subject to future downward rating actions. The rating on class A-M will be capped at 'Asf' for any future rating actions due to previous interest shortfalls. According to Fitch's global criteria for rating caps, Fitch will not assign or maintain 'AAAsf' or 'AAsf' ratings for notes that it believes have a high level of vulnerability to interest shortfalls or deferrals, even if permitted under the terms of the documents (for more information please see the full report titled 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions', dated May 28, 2014, at www.fitchratings.com).
Fitch affirms the following classes as indicated:
--$1 billion class A-3 at 'AAAsf', Outlook Stable;
--$319.2 million class A-1A at 'AAAsf', Outlook Stable;
--$355.4 million class A-M at 'Asf', Outlook Negative;
--$284.3 million class A-J at 'Dsf', RE 70%;
--$0 class B at 'Dsf', RE 0%;
--$0 class C at 'Dsf', RE 0%;
--$0 class D at 'Dsf', RE 0%;
--$0 class E at 'Dsf', RE 0%;
--$0 class F at 'Dsf', RE 0%;
--$0 class G at 'Dsf', RE 0%;
--$0 class H at 'Dsf', RE 0%;
--$0 class J at 'Dsf', RE 0%;
--$0 class K at 'Dsf', RE 0%;
--$0 class L at 'Dsf', RE 0%;
--$0 class M at 'Dsf', RE 0%;
--$0 class N at 'Dsf', RE 0%.
The class A-1, A-2 and A-AB certificates have paid in full. Fitch does not rate the class P, Q, S and T certificates. Fitch previously withdrew the ratings on the interest-only class X-CP, X-W 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' (May 20, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (May 28, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria