NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded one distressed class and affirmed 19 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 downgrade to class K reflects losses incurred on the class. Fitch modeled losses of 16.3% of the remaining pool; expected losses on the original pool balance total 15.6%, including $159.8 million (5.4% of the original pool balance) in realized losses to date. Fitch has designated 67 loans (52.8%) as Fitch Loans of Concern, which includes 48 specially serviced assets (23.3%).
As of the June 2014 distribution date, the pool's aggregate principal balance has been reduced by 37.2% to $1.87 billion from $2.98 billion at issuance. Per the servicer reporting, one loan (1.7% of the pool) is 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 PEC0 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 $317.3 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 81.6%, per the December 2013 rent rolls.
The loan had transferred to special servicing in August 2012 due to the borrower's request for a loan modification; the loan has been in payment default since 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. Per the DIL agreement, all 39 properties are expected to become real estate owned (REO) by year end (YE) 2014. The special servicer reports it is currently evaluating the appropriate resolution and disposition strategy.
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 has experienced cash flow issues due to occupancy declines, as well as softening market conditions. McAfee Associates Inc. (McAfee) (previously 46% of the total net rentable area [NRA]), which occupied 100% of Tower II (214,080 SF), had vacated the property at its lease expiration in March 2013. The borrower has been successful in re-leasing approximately 85,000 SF (20% of total NRA) of the vacated McAfee space to CA Technologies on a long-term lease from July 2013 through January 2024. As a result occupancy improved to 67% per the December 2013 rent roll, from 42% in December 2012.
The net operating income (NOI) debt service coverage ratio (DSCR) for YE 2013 reported at 0.51x, compared to 0.92x at YE 2012. Property cash flow is expected to significantly improve for 2014 due to the burn off of CA Technologies rent concessions, which have gradually expired between January 2014 and May 2014. The loan is current as of the June 2014 payment date.
The third largest contributor to Fitch expected losses is the Islandia Shopping Center loan (3.9%) 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. Although the property is currently 96% occupied, the borrower cited previous cash flow constraints from vacancies, reduced rental rates and chronically delinquent payments.
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 loan was recently 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 ($63.5 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 is current under the modified terms and is expected to be returned to the master servicer after the monitoring period.
Fitch downgrades the following class:
--$4 million class K to 'Dsf' from 'Csf'; RE 0%.
Fitch affirms the following classes:
--$859.1 million class A-4 at 'AAAsf'; Outlook Stable;
--$276.9 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 80%;
--$33.5 million class B at 'CCCsf'; RE 0%;
--$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%;
--$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 on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 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 20, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835507
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