Fitch Upgrades Three Classes of LB-UBS 2007-C1
KEY RATING DRIVERS
The upgrades reflect increased credit enhancement (CE), expected paydown from upcoming maturities, and the strength of the top five loans representing 56% of the remaining pool. Fitch modeled losses of 8.9% of the remaining pool; expected losses on the original balance total 11.4%, including \\$206.8 million (5.5% of the original pool balance) in realized losses to date. Interest shortfalls are currently affecting classes G through T and BMP. Fitch has designated 12 loans (6%) as Fitch Loans of Concern, which includes 10 specially serviced assets (3.8%).
As of the October 2015 distribution date, there are 108 loans remaining from the original 146 loans and the pool's aggregate principal balance has been reduced by 34% to \\$2.47 billion from \\$3.75 billion at issuance. Per the servicer reporting, 14 loans (7.6% of the pool) are defeased.
The largest contributor to expected losses is the Del Amo Financial Center loan (2.1%), which is secured by a 348,185 square foot (sf) office property located in Torrance, CA. The servicer reported a debt service coverage ratio (DSCR) of 0.76x for year-end (YE) 2014, as compared to 0.77x YE 2013. The decrease was attributed to an increase in total operating expenses. The property was 63% occupied as of September 2014, with potential for 32% of leases to expire within a year.
The second largest contributor to expected losses is the 1745 Broadway loan (13.4%), which is secured by a 636,598 sf, Class A office building located at Broadway and 56th Street in Manhattan. The building is 100% occupied by Random House, whose parent company is Bertelsmann AG (rated BBB+ by Fitch as of April 27, 2015). The Random House lease is triple net with a portion (53%) expiring in June 2023 and the remaining 47% expiring in June 2018. The loan is scheduled to mature in November 2017 and Random House's lease is significantly below market. Per servicer reporting the DSCR increased to 1.18x as of YE 2014 from 1.13 as of YE 2013. Fitch's analysis used the year-end 2014 servicer-reported NOI and a stressed cap rate; however, given the strong location and long-term, investment grade tenant, losses may not be incurred.
The two largest specially serviced loans (combined 1.2%) are secured by suburban office buildings located in West Greenwich, RI. The buildings, totalling 263,000 sf, are cross-collateralized. One building is 100% occupied with a lease that expires in 2019 and continues to show stable performance with a net operating income debt service coverage ratio (NOI DSCR) of 1.21x as of YE 2014. The second building is 100% vacant after the sole tenant left upon lease expiration.
The Stable Outlooks for classes A-4, A-1A, A-M, and A-J reflect their increased CE and expected continued pay down. Further upgrades to the distressed classes are possible should the underlying collateral continue to show positive performance improvements and pay down at maturity. Downgrades, although not expected, are possible should larger loans incur greater-than-modeled losses.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following:
--\\$371.3 million class A-M notes to 'AAsf' from 'Asf'; Outlook to 'Stable' from 'Positive';
--S315.6 million class A-J notes to 'BBsf' from 'Bsf'; Outlook Stable;
--\\$27.8 million class B notes to 'Bsf' from 'CCCsf'; Outlook Stable Assigned.
Fitch has affirmed the following classes:
--\\$1.1 billion class A-4 notes at 'AAAsf'; Outlook Stable;
--\\$423 million class A-1A notes at 'AAAsf'; Outlook Stable;
--\\$55.7 million class C notes at 'CCsf'; RE 50%;
--\\$37.1 million class D notes at 'CCsf'; RE 0%;
--\\$18.6 million class E notes at 'CCsf'; RE 0%;
--\\$32.5 million class F notes at 'Csf'; RE 0%;
--\\$32.5 million class G notes at 'Csf'; RE 0%;
--\\$41.8 million class H at 'Csf'; RE 0%;
--\\$14.6 million class J at 'Dsf'; RE 0%;
--\\$0 class K at 'Dsf'; RE 0%;
--\\$0 class L at 'Dsf'; RE 0%;
--\\$0 class M at 'Dsf'; RE 0%;
--\\$0 class N at 'Dsf'; RE 0%.
The class A-1, A-2, A-3 and A-AB certificates have paid in full. Fitch does not rate the class P, Q, S, T and BMP certificates. Fitch previously withdrew the ratings on the interest-only class X-CP, X-W and X-CL certificates.