S&P: Various Rtg Actions Taken On LB-UBS Commercial Mortgage Trust 2006-C1
Our rating actions on the certificates follow our analysis of the transaction, primarily using our criteria for rating U. S. and Canadian CMBS transactions, which included a review of the credit characteristics and performance of the remaining assets in the pool, the transaction's structure, and the liquidity available to the trust.
The downgrade on class D reflects credit support erosion that we anticipate will occur upon the eventual resolution of the 10 assets ($226.6 million, 72.8%) with the special servicer (discussed below). In addition, we expect theapproved loan modification on Triangle Town Center to generate near-term shortfalls to this class. We lowered our ratings on classes E and F to 'D (sf)' because we expect the accumulated interest shortfalls to remain outstanding for the foreseeable future.
According to the July 15, 2016, trustee remittance report, the current monthlyinterest shortfalls totaled $173,878 and resulted from:
Appraisal subordinate entitlement reduction amounts totaling $116,614; and
Special servicing fees totaling $57,264.
The current interest shortfalls affected classes subordinate to and including class E.
The affirmations on the certificates reflect our expectation that the available credit enhancement for these classes will be within our estimate of the necessary credit enhancement required for the current ratings. The affirmations also reflect our views regarding the collateral's current and future performance, the transaction structure, and liquidity support availableto the classes.
While available credit enhancement levels suggest positive rating movement on classes A-J, B, C, and D, our analysis also considered the susceptibility to reduced liquidity support from the ten specially serviced assets ($226.6 million, 72.8%).
As of the July 15, 2016, trustee remittance report, the collateral pool balance was $311.4 million, which is 12.5% of the pool balance at issuance. The pool currently includes 10 loans and two real estate owned (REO) assets (reflecting crossed loans), down from 145 loans at issuance. Ten of these assets ($226.6 million, 72.8%) are with the special servicer, none are defeased, and one ($2.5 million, 0.8%) is on the master servicer's watchlist. The master servicer, Wells Fargo Bank N. A., reported financial information for100.0% of the nondefeased loans in the pool, of which 62.9% was year-end 2015 data and the remainder was year-end 2014 data.
We calculated a 2.80x S&P Global Ratings weighted average debt service coverage (DSC) and 52.1% S&P Global Ratings weighted average loan-to-value (LTV) ratio using a 7.72% S&P Global Ratings weighted average capitalization rate. The DSC, LTV, and capitalization rate calculations exclude nine of the 10 specially serviced assets. The top 10 nondefeased assets have an aggregate outstanding pool trust balance of $309.7 million (99.4%).
To date, the transaction has experienced $149.0 million in principal losses tothe pooled certificates, or 6.1% of the original pool trust balance. We expectlosses to reach approximately 8.0% of the original pool trust balance in the near term, based on losses incurred to date and additional losses we expect upon the eventual resolution of nine of the 10 ($118.1 million, 37.9%) specially serviced assets.
As of the July 15, 2016, trustee remittance report, 10 assets ($226.6 million,72.8%) in the pool were with the special servicer, LNR Partners Inc. (LNR). Details of the three largest specially serviced assets, all of which are top 10 nondefeased loans, are as follows:
The Triangle Town Center loan ($108.5 million, 34.8%) is the largest nondefeased loan in the pool and has a total reported exposure of $108.5 million. The loan is secured by a retail property totaling 1.44 million sq. ft. (of which 601,000 sq. ft. serves as collateral) in Raleigh, N. C. The loan was transferred to the special servicer on Sept. 11, 2015, due toimminent default. The loan failed to pay off by the original maturity dateof Dec. 5, 2015. LNR confirmed that a loan modification was completed Feb.8, 2016, and includes a maturity extension, interest rate reduction, and conversion to interest-only. The reported DSC and occupancy as of March 31, 2016, were 1.14x and 92.3%, respectively. We have considered the termsof the loan modification, specifically regarding the interest rate reduction, in our analysis.
The DHL Center loan ($55.9 million, 17.9%) has a total reported exposure of $56.4 million. The loan is secured by a 490,000-sq.-ft. industrial building in Breinigsville, Pa. The loan was transferred to the special servicer on Oct. 29, 2015, due to imminent default. The loan failed to payoff by its Jan. 11, 2016, maturity date. LNR indicated that it has filed for foreclosure and expects the foreclosure sale to take place earlynext year. The reported DSC and occupancy as of year-end 2015 were 1.36x and 100.0%, respectively. An ARA of $17.6 million is in effect against this loan. We expect a moderate loss upon this loan's eventual resolution.
The River Valley Mall loan ($44.4 million, 14.3%) has a total reported exposure of $46.2 million. The loan is secured by a retail property totaling 577,570 sq. ft. in Lancaster, Ohio. The loan was transferred to the special servicer on Oct. 21, 2015, because the borrower stated that itwould not be able to pay off the loan at its Jan. 11, 2016, maturity date. LNR indicated that it is dual tracking foreclosure and work-out discussions. The reported DSC and occupancy as of year-end 2015 were 1.32xand 91.0%, respectively. An ARA of $18.6 million is in effect against thisloan. We expect a moderate loss upon this loan’s eventual resolution.
The seven remaining assets with the special servicer each have individual balances that represent less than 3.0% of the total pool trust balance. We estimated losses for nine of the 10 specially serviced assets, arriving at a weighted-average loss severity of 40.3%.
For the specially serviced assets noted above, a minimal loss is less than 25%, a moderate loss is 26%-59%, and a significant loss is 60% or greater.