Fitch Ratings downgrades 14 classes, removes 13 classes from Rating Watch Negative and revises Rating Outlooks on six classes of commercial mortgage pass-through certificates from LB-UBS Commercial Mortgage Trust 2007-C1. A detailed list of rating actions follows at the end of this press release.
The downgrades are the result of loss expectations and reflect Fitch's prospective views regarding commercial real estate market value and cash flow declines. Fitch forecasts potential losses of 12.2% for this transaction, should market conditions not recover. Today's rating actions are based on losses of 9.4%, including 100% of the losses associated with term defaults and any losses associated with maturities within the next five years. Given the significant term to maturity, Fitch's actions only account for 25% of the losses associated with maturities beyond five years. The bonds with Negative Outlooks indicate classes that may be downgraded in the future should full potential losses be realized. Fitch considers the Outlooks on the super-senior classes to be Stable due to projected losses having limited impact on credit enhancement when associated paydown is factored into the analysis.
Fitch analyzed the transaction and calculated expected losses by assuming cash flows on each of the properties decline 15% from year-end (YE) 2007 and property values decline 35% from issuance. These loss estimates were reviewed in more detail for loans representing 67.6% of the pool and, in certain cases, revised based on additional information and/or property characteristics.
Approximately 24.3% of the mortgages mature within the next five years as follows: 14% in 2011, 4.3% in 2012, 0.1% in 2013, and 5.9% in 2014. In 2017, 57.3% of the pool is scheduled to mature.
Fitch identified 25 Loans of Concern (17.2%) within the pool, 18 of which (16.3%) are specially serviced. Of the specially serviced loans, six (8.7% of the pool) are current. Three of the Fitch Loans of Concern (8.1%) are within the transaction's top 15 loans (62.2%) by unpaid principal balance, one of which is 90 days delinquent.
Seven of the loans within the top 15 (24%) are expected to default, with losses expected during the term for two (6.8%) loans, and maturity losses expected for the remaining five (17.2%) loans. Loss severities associated with these defaults range from 12% to 47%. The largest contributors to loss on a pool level basis are as follows: Bethany Maryland Portfolio (4%), Bethany Houston Portfolio (2.7%), and Sevilla Apartments (1.3%).
The largest (4%) and second largest (2.7%) Loans of Concern are two components of a four loan (8.3%) borrower concentration that transferred to the special servicer in March 2009 for imminent default. Bethany Maryland Portfolio (4%), Bethany Houston Portfolio (2.7%), Bethany Austin Portfolio (1.2%), and Bethany Blanding Place (0.4%) are comprised of class B/C multifamily units generally built in the 1960s, 1970s, and 1980s. The loans transferred after it was reported to the special servicer that the former management company, which was related to the borrower, apparently terminated all employees and abandoned the properties in late February 2009. In addition, with respect to the Houston and Austin Portfolios, it was also reported that numerous mechanic liens had been recorded against the properties securing the loans. Since the transfer, new management companies have been appointed to focus on maintenance of the grounds. The management companies are also conducting aggressive leasing campaigns. The borrower, Bethany Holdings Group LLC, is seeking a loan modification in order to stabilize performance of the property. Occupancy at each property on a portfolio level ranges from 72% to 89% as of year-end 2008. Losses are expected prior to the loan maturities.
The next Loan of Concern (1.3%) is secured by a 249-unit multifamily portfolio located in San Francisco. The loan, which is specially serviced, is cross-collateralized and cross-defaulted with four other specially serviced loans (0.96%) in the pool that have a related borrower, Frank Lembi. In total, the five loans (2.3%) are secured by 19 multi-family buildings located in San Francisco, CA, encompassing a total of 509-units. The loans transferred in April 2009 as a result of cash flow being insufficient to cover the debt service. Occupancy at each property on a portfolio level ranges from 60% to 100% as of year-end 2008. Limited details are presently available on the workout due to the loan's recent transfer to special servicing. The special servicer is discussing workout options with the borrower.
The next Loan of Concern (1.3%) is secured by Sevilla Apartments, a 512-unit class B garden apartment complex located in Palm Desert, CA. The loan, which is specially serviced, transferred in May 2009 for imminent default. Due to increased tenant delinquency, job losses, and softening market conditions, occupancy during 2008 declined to a low of 45%. Occupancy has improved to 65% as of June 2009; however, cash flow continues to be insufficient to cover debt service. As of year-end 2008, the servicer-reported debt service coverage ratio (DSCR) was 0.14 times (x), as compared to an issuer underwritten DSCR of 1.23 times (x) at origination. The borrower has asked for a loan modification and is discussing workout options with the special servicer. Based on current performance, losses are expected prior to the loan's maturity.
Fitch downgrades and assigns Rating Outlooks where indicated to the following classes:
--$315.6 million class A-J to 'BB' from 'AAA'; Outlook Negative;
--$27.8 million class B to 'BB' from 'AA+'; Outlook Negative;
--$55.7 million class C to 'B' from 'AA'; Outlook Negative;
--$37.1 million class D to 'B-' from 'AA-'; Outlook Negative;
--$18.6 million class E to 'B-' from 'A+'; Outlook Negative;
--$32.5 million class F to 'B-' from 'A'; Outlook Negative;
--$32.5 million class G to 'B-' from 'A-'; Outlook Negative;
--$41.8 million class H to 'CCC/RR6' from 'BBB+';
--$41.8 million class J to 'CC/RR6' from 'BBB';
--$51.1 million class K to 'CC/RR6' from 'BBB-';
--$9.3 million class L to 'CC/RR6' from 'BB-';
--$9.3 million class M to 'CC/RR6' from 'B+';
--$9.3 million class N to 'CC/RR6' from 'B'.
Fitch also removes all of the above classes from Rating Watch Negative.
In addition, Fitch affirms the following classes and Outlooks as indicated:
--$37.4 million class A-1 at 'AAA'; Outlook Stable;
--$211 million class A-2 at 'AAA'; Outlook Stable;
--$225 million class A-3 at 'AAA'; Outlook Stable;
--$95 million class A-AB at 'AAA'; Outlook Stable;
--$1.2 billion class A-4 at 'AAA'; Outlook Stable;
--$849.3 million class A-1A at 'AAA'; Outlook Stable;
--Interest-only class X-CP at 'AAA'; Outlook Stable;
--Interest-only class X-W at 'AAA'; Outlook Stable;
--Interest-only class X-CL at 'AAA'; Outlook Stable.
Fitch also affirms the following class and revises the Outlook as indicated:
--$371.3 million class A-M at 'AAA'; Outlook to Negative from Stable;
Fitch does not rate classes P, Q, S, T, or BMP.
Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 8, 2009 report, 'Surveillance Methodology for Recent Vintage U.S. CMBS', available on Fitch's web site at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Fitch will release a report titled 'Bank of America Commercial Mortgage Inc., Series 2007-3' that will contain a graph of revised loss expectations for the transaction at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Special Reports
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings, New York
Chris Bushart, +1-212-908-0606
Britt
Johnson, +1-312-606-2341 (Chicago)
Brian Bertsch, +1-212-908-0549
(Media Relations)
brian.bertsch@fitchratings.com