14 Ratings Lowered On Two LB-UBS U.S. CMBS Transactions Due To Interest Shortfalls
OVERVIEW
- We lowered our ratings on 14 classes from two LB-UBS U.S. CMBS transactions due to current and potential interest shortfalls.
- We lowered our ratings on 10 of these classes to 'D (sf)' because we expect the accumulated interest shortfalls to remain outstanding for the foreseeable future.
NEW YORK (Standard & Poor's) Oct. 10, 2011--Standard & Poor's Ratings Services today lowered its ratings on 14 classes of commercial mortgage pass-through certificates from two LB-UBS U.S. commercial mortgage-backed securities (CMBS) transactions (see list). The downgrades reflect current and potential interest shortfalls. We lowered our ratings on 10 of these classes to 'D (sf)' because we expect the accumulated interest shortfalls to remain outstanding for the foreseeable future. All 10 classes that we downgraded to 'D (sf)' have had accumulated interest shortfalls outstanding between five and 13 months. The recurring interest shortfalls for the respective certificates are primarily due to one or more of the following factors:
- Appraisal subordinate entitlement reduction (ASER) amounts in effect for specially serviced loans;
- The lack of servicer advancing for loans where the servicer has made nonrecoverable advance declarations;
- Special servicing fees; and
- Interest rate reductions or deferrals resulting from loan modifications.
Standard & Poor's analysis primarily considered the ASER amounts based on appraisal reduction amounts (ARAs) calculated using recent Member of the Appraisal Institute (MAI) appraisals. We also considered special servicing fees that are likely, in our view, to cause recurring interest shortfalls. The servicer implements ARAs and resulting ASER amounts in accordance with each respective transaction's terms. Typically, these terms call for the automatic implementation of an ARA equal to 25% of the stated principal balance of a loan when a loan is 60 days past due and an appraisal or other valuation is not available within a specified timeframe. We primarily considered ASER amounts based on ARAs calculated from MAI appraisals when deciding which classes from the affected transactions to downgrade to 'D (sf)' because ARAs based on a principal balance haircuts are highly subject to change, or even reversal, once the special servicer obtains the MAI appraisals. Servicer nonrecoverable advance declarations can prompt shortfalls due to a lack of debt service advancing, the recovery of previously made advances deemed nonrecoverable, or the failure to advance trust expenses when nonrecoverable declarations have been determined. Trust expenses may include, but are not limited to, property operating expenses, property taxes, insurance payments, and legal expenses. We detail the 14 downgraded classes from the two LB-UBS U.S. CMBS transactions below. LB-UBS Commercial Mortgage Trust 2005-C5 We lowered our ratings on the class G, H, J, K, L, M, N, P, Q, and S certificates from LB-UBS Commercial Mortgage Trust 2005-C5. We lowered our ratings to 'D (sf)' on the class H, J, K, L, M, N, P, Q, and S certificates to reflect accumulated interest shortfalls outstanding between five and 13 months, resulting primarily from ASER amounts related to four ($34.9 million, 1.9%) of the six loans ($93.7 million, 5.1%) that are currently with the special servicer, LNR Partners LLC (LNR), special servicing fees as well as the partial repayment of workout fees totaling $2.4 million that were incurred in the August 2011 and September 2011 trustee remittance reports due to the liquidation of the Providence Place Mall loan that was previously specially serviced. We lowered our rating on class G due to reduced liquidity support available to this class and the potential for this class to experience interest shortfalls in the future relating to the specially serviced loans. As of the Sept. 16, 2011, trustee remittance report, ARAs totaling $14.1 million were in effect for the four loans and the total reported monthly ASER amount on these loans was $69,742. The reported monthly interest shortfalls totaled $106,168, and have affected all of the classes subordinate to and including class H. LB-UBS Commercial Mortgage Trust 2006-C4 We lowered our ratings on the class F, G, H, and J certificates from LB-UBS Commercial Mortgage Trust 2006-C4. We lowered our rating to 'D (sf)' on class J to reflect accumulated interest shortfalls outstanding for six months, resulting primarily from ASER amounts related to 11 ($137.6 million, 7.9%) of the 25 ($229.6 million, 13.2%) assets that are currently with the special servicer, CWCapital Asset Management LLC, and interest not advanced, as well as special servicing fees ($47,986) and interest reduction due to rate modification ($15,753). We lowered our ratings on classes F, G, and H due to reduced liquidity support available to these classes and the potential for these classes to experience interest shortfalls in the future relating to the specially serviced assets. As of the Sept. 16, 2011 trustee remittance report, ARAs totaling $69.4 million were in effect for 11 assets and the total reported monthly ASER amount on these assets was $395,111. The master servicer, Wells Fargo Bank N.A. (Wells Fargo), made a nonrecoverability determination on two other specially serviced assets. Consequently, Wells Fargo did not advance interest totaling $156,480 on these two specially serviced assets. The reported monthly interest shortfalls totaled $432,293, which was reduced by ASER recoveries of $183,036 in this reporting period; and have affected all of the classes subordinate to and including class J. RELATED CRITERIA AND RESEARCH
- Rating U.S. CMBS In The Face Of Interest Shortfalls, published Feb. 23, 2006.
RATINGS LOWERED
LB-UBS Commercial Mortgage Trust 2005-C5
Commercial mortgage pass-through certificates
Credit Reported
Rating enhancement interest shortfalls ($)
Class To From (%) Current Accumulated
G CCC- (sf) BB- (sf) 6.43 (96,913) 372,691
H D (sf) B+ (sf) 5.16 104,503 521,914
J D (sf) B+ (sf) 4.37 65,319 326,218
K D (sf) B+ (sf) 3.26 96,435 475,779
L D (sf) B (sf) 2.78 34,794 173,768
M D (sf) B (sf) 2.46 23,200 115,865
N D (sf) B- (sf) 1.99 34,794 173,768
P D (sf) B- (sf) 1.83 11,598 57,923
Q D (sf) B- (sf) 1.51 23,196 115,845
S D (sf) CCC+ (sf) 1.19 23,196 182,556
LB-UBS Commercial Mortgage Trust 2006-C4
Commercial mortgage pass-through certificates
Credit Reported
Rating enhancement interest shortfalls ($)
Class To From (%) Current Accumulated
F CCC+ (sf) B (sf) 8.29 0 0
G CCC- (sf) B (sf) 7.15 0 0
H CCC- (sf) B- (sf) 6.30 0 0
J D (sf) CCC- (sf) 4.74 33,089 560,953
| Primary Credit Analysts: | Gregory Ramkhelawan, New York (1) 212-438-3041; gregory_ramkhelawan@standardandpoors.com |
| John Kemp, New York; john_kemp@standardandpoors.com |
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