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 and also considers the recent liquidation of 21 loans in special servicing. Fitch modeled losses of 5.5% of the remaining pool; expected losses on the original pool balance total 15.2%, including $427.8 million (12% of the original pool balance) in realized losses to date. Fitch has designated 32 loans (19.7%) as Fitch Loans of Concern, which includes two specially serviced assets (0.3%).
As of the August 2013 distribution date, the pool's aggregate principal balance has been reduced by 41.8% to $2.07 billion from $3.55 billion at issuance. No loans are defeased. Interest shortfalls are currently affecting classes A-M through T.
In July 2013 Fitch had downgraded classes A-J through J to 'D' after the classes experienced principal write downs following the bulk liquidation of 21 specially serviced loans. ORIX Capital Markets, the special servicer, had placed the foreclosed real estate for sale as part of a marketing campaign focused on distressed loans and REO asset sales. The recoveries from the dispositions paid in full the A-2 and A-AB classes, and partially repaid class A-3 and the multifamily directed class A-1A. (For more information please refer to 'Fitch Downgrades 9 Distressed Classes of LBUBS 2007-C2', dated July 22, 2013, available at www.fitchratings.com.)
The largest contributor to expected losses is the Watergate 600 loan (6.4% of the pool), which is secured by a 12-story, 289,286 square foot (SF) office building in Washington, DC. As of June 2013 the building is 99% occupied. 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 year end (YE) December 2012 net operating income (NOI) debt service coverage ratio (DSCR) reported at 1.28x. The loan remains current as of the August 2013 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 second largest contributor to losses is the Delamar Hotel (1.78%), 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 year-to-date June 2013, occupancy reported at 63%, ADR was $299.83, and RevPAR was $188.26, respectively, versus 57.6%, $304.98, and $175.85 for YE 2010. The partial interest-only loan has been amortizing since March 2012. The YTD June 2013 NOI DSCR reported at 0.91x. Based on the YE 2012 NOI and YE 2011 NOI, amortized DSCR calculates to 1.03x and 0.98x, respectively. The loan remains current as of the August 2013 payment date.
The next largest contributors to expected losses are three loans secured by office buildings located in Louisville, KY loan (1.6%), McLeansville, NC (1.5%), and Meridian, ID (1.5%). 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 2012 NOI DSCR has reported at 1.17x for the three loans since issuance. The loan remains current as of the August 2013 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.
RATING SENSITIVITY
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 36% of the pool and the top 15 loans representing 70%. In addition, the Negative Outlook reflects interest shortfalls, which are currently being incurred as of the August 2013 distribution date. The class could be downgraded should interest shortfalls continue to impact the class for an extended period of time.
Fitch affirms the following classes as indicated and revises the Rating Outlook on class A-1A as indicated:
--$1.1 billion class A-3 at 'AAAsf', Outlook Stable;
--$370.5 million class A-1A at 'AAAsf', Outlook to Stable from Negative;
--$355.4 million class A-M at 'Asf', Outlook Negative;
--$283.1 million class A-J at 'Dsf', RE 65%;
--$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. 18, 2012 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. 18, 2012).
Applicable Criteria and Related Research:
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696969
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=801996
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