NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 20 classes of LB-UBS Commercial Mortgage Trust (LBUBS) commercial mortgage pass-through certificates series 2007-C6. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The affirmations reflect sufficient credit enhancement (CE) relative to Fitch expected losses. Fitch modeled losses of 15.1% of the remaining pool; expected losses on the original pool balance total 14.7%, including $158.9 million (5.3% of the original pool balance) in realized losses to date. Fitch has designated 65 loans (51.2%) as Fitch Loans of Concern, which includes 44 specially serviced assets (24.4%).
As of the May 2015 distribution date, the pool's aggregate principal balance has been reduced by 38.1% to $1.84 billion from $2.98 billion at issuance. Per the servicer reporting, five loans (5.2% of the pool) are defeased. Interest shortfalls are currently affecting classes J through T.
RATING SENSITIVITIES
The Negative Outlook on classes A-M and A-MFL reflects the potential risk for greater than expected losses on the specially serviced loans, primarily the PECO Portfolio. In addition, the Negative Outlook reflects performance concerns and declining cash flows for several underperforming properties in the top 15 loans. The classes could be subjected to future downgrades should expected losses increase.
The largest contributor to expected losses is the specially-serviced PECO Portfolio loan (17% of the pool), which consists of 39 cross-collateralized loans totaling $313.8 million secured by 39 retail properties totaling 4.25 million square feet (SF) located across 13 states. Primarily grocery-anchored, the portfolio's major tenants include Tops Markets, Bi-Lo Grocery, Big Lots, and Publix. The portfolio had experienced cash flow issues due to turnover and vacancy costs at several of the properties. Occupancy for the portfolio reported at 79.6%, per the March 2015 or April 2015 rent rolls.
The loan had transferred to special servicing in August 2012 due to the borrower's request for a loan modification, and subsequently went into payment default in September 2012. A court-ordered cash management agreement was enforced by the servicer in December 2012, and the borrower had subsequently executed a deed-in-lieu (DIL) of foreclosure agreement. The DIL agreement provided for two stages for all 39 properties to become real estate owned (REO), with title obtained by the lender on 26 properties by June 30, 2014 and the remaining 13 properties transferring title between November 2014 and May 2015. The special servicer's current strategy for the majority of the properties within the portfolio is to maximize occupancy and address deferred maintenance items. One property, Houston Square (1.5% of total loan balances) was sold in March 2015.
The next largest contributor to expected losses is the McCandless Towers loan (6.1%). The property, which is also referred to as the Santa Clara Towers, is collateralized by two 11-story, Silicone Valley office buildings totaling 426,326 SF, located in Santa Clara, CA. The property had experienced significant occupancy declines when McAfee Associates Inc. (McAfee; previously 46% of the total net rentable area [NRA]), which occupied 100% of Tower II (214,080 SF), vacated in late 2012 and early 2013. The borrower has been successful in re-tenanting the property with current occupancy reporting at 90.4% as of March 2015, compared to 67% in December 2013 and 41.6% in December 2012. The majority of the McAfee vacated space has been leased to Computer Associates Technologies Inc. (CA Inc.) which took occupancy of approximately 138,648 SF (32.4% NRA) between July 2013 and December 2014, with all leases expiring in 2024. Rent concessions for CA Inc. have completely burned off, with full rent being paid on all floors as of June 1, 2015. An additional 16 leases were executed in 2014 for approximately 79,000 SF (18.4% NRA).
The net operating income (NOI) debt service coverage ratio (DSCR) for year-end (YE) 2014 reported at 0.86x, compared to 0.51x at YE 2013, and 0.92x at YE 2012. The YE 2014 NOI increase over YE 2013 reflects the significant vacancy increase since McAfee had vacated the property. Property cash flow is expected to further improve for 2015 as concessions continue to burn off and full year rents from recently executed leases are fully realized. The loan is current as of the May 2015 payment date.
The third largest contributor to Fitch expected losses is the Islandia Shopping Center loan (3.4%) which is collateralized by a 376,774 SF retail center located in Islandia, NY (Long Island). The property's anchors are a Wal-Mart and a Stop & Shop. Additional major tenants include Dave & Busters and TJ Maxx.
The property transferred to special servicing in March 2013 due to imminent default and loan modification request, and subsequently went into payment default in October 2013. The property had suffered cash flow issues due to reduction in the property's revenue from tenant vacancies, reduced rental rates, and delinquent rental payments. The loan was modified in April 2014 while in special servicing, which included an extension of the loans maturity date, a reduction of the interest-only period with amortization scheduled to begin in year two, a reduced initial interest rate with scheduled rate increases, and a bifurcation of the loan into a senior (currently $63.4 million) and junior ($10.1 million) component. Although losses are not imminent, any recovery to the B-note is contingent upon full recovery to the A-note proceeds at the loan's maturity in July 2021. Unless collateral performance improves, recovery to the B-note component is unlikely. The loan was returned to the master servicer in May 2015 and remains current under the modified terms. As of YE 2014, occupancy reported at 97% with NOI DSCR reporting at 1.24x.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
--$837.4 million class A-4 at 'AAAsf'; Outlook Stable;
--$272.1 million class A-1A at 'AAAsf'; Outlook Stable;
--$227.9 million class A-M at 'Asf'; Outlook Negative;
--$70 million class A-MFL at 'Asf'; Outlook Negative;
--$156.4 million class A-J at 'CCCsf'; RE 100%;
--$33.5 million class B at 'CCCsf'; RE 15%;
--$37.2 million class C at 'CCCsf'; RE 0%;
--$33.5 million class D at 'CCsf'; RE 0%;
--$29.8 million class E at 'CCsf'; RE 0%;
--$29.8 million class F at 'Csf'; RE 0%;
--$33.5 million class G at 'Csf'; RE 0%;
--$37.2 million class H at 'Csf'; RE 0%;
--$41 million class J at 'Csf'; RE 0%;
--$4.9 million 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%;
--$0 class P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%;
--$0 class S at 'Dsf'; RE 0%.
The class A-1, A-2, A-2FL, A-3 and A-AB certificates have paid in full. Fitch does not rate the class T certificates. Fitch previously withdrew the rating on the interest-only class X certificates.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Global Structured Finance Rating Criteria (pub. 31 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=986441
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986441
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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