NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded two classes of Lehman Brothers-UBS (LB-UBS) Commercial Mortgage Trust commercial mortgage pass-through certificates, series 2001-C3. Given the pool's concentration, Fitch applied higher net operating income and capitalization rate stresses in its analysis. A high default probability scenario was also applied on the performing loans. 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 transaction. Fitch modeled losses of 42.6% of the remaining pool; expected losses on the original pool balance total 6.63%. The pool has experienced $48.6 million (3.5% of the original pool balance) in realized losses to date. Fitch has designated five loans (97.6%) as Fitch Loans of Concern, which includes four specially serviced assets (94.8%).
As of the March 2015 distribution date, the pool's aggregate principal balance has been reduced by 92.5% to $104 million from $1.38 billion at issuance. The pool has become extremely concentrated with only six of the original 169 loans remaining in the transaction, one of which (2.4%) is defeased. Interest shortfalls are currently affecting classes H through Q.
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. The Vista Ridge Mall loan (65% of the pool), which is currently 30 days delinquent, accounts for approximately 64% of the total scheduled monthly interest for the pool. In addition, the Negative Outlooks on classes E and F reflect the loan concentration and adverse selection of the remaining pool, with four out of the six remaining loans currently in special servicing with limited near term resolutions. Classes E and F may be subjected to further rating downgrades should expected losses increase.
The largest contributor to expected losses is the Vista Ridge Mall loan (65%), the largest remaining loan, which is secured by 380,000 square feet of inline space within 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 95.5% for September 2014, the net operating income (NOI) debt service coverage ratio (DSCR) has declined to 0.89x, compared to 0.92x at year-end (YE) 2013 and 1.06x at YE 2012. 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. The loan was previously modified while in special servicing with its maturity date extended to April 2016 and subsequently returned back to master servicing in 2010. The loan recently transferred back to special servicing in February 2015 for payment default and is 30 days delinquent as of the March 2015 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 for highest and best use. The servicer reports current occupancy at 56%.
Fitch downgrades the following classes:
--$18 million class F to 'BBsf' from 'BBB-sf'; Outlook Negative;
--$12.1 million class G to 'CCsf' from 'Bsf'; RE 30%.
Fitch affirms the following classes:
--$4.1 million class C at 'Asf'; Outlook Stable;
--$16 million class D at 'Asf'; Outlook Stable;
--$18 million class E at 'BBBsf'; 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. 10, 2014 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. 10, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria