Fitch Downgrades LB-UBS 2006-C1; Affirms Super Sr. & Mezzanine 'AAA' Classes
NEW YORK -- March 6, 2013
Fitch Ratings has downgraded five classes of LB-UBS Commercial Mortgage Trust
(LB-UBS) commercial mortgage pass-through certificates series 2006-C1 and
affirmed the super senior and mezzanine 'AAA' classes. In addition, Fitch has
downgraded nine of the rake bond classes, which include junior non-pooled
trust balances. A detailed list of rating actions follows at the end of this
KEY RATING DRIVERS
The downgrades on the pooled trust classes B through F reflect an increase in
Fitch expected losses across the pool due to further deterioration in
performance. The downgrades on the rake bond classes is due to an updated
lower appraisal value of the Intel Corporate Building loan, whose $20 million
B-Note accounts for 73% of the non-pooled balances.
Fitch modeled losses of 6.1% of the remaining pool; expected losses on the
original pool balance total 9.7%, including losses already incurred. The pool
has experienced $124.4 million (5% of the original pool balance) in realized
losses to date. Fitch has designated 34 loans (19.4%) as Fitch Loans of
Concern, which includes seven specially serviced assets (4.7%).
The Negative Outlook on classes A-J and B reflect performance concerns and
high leverage on several loans in the top 15. The allocation of the loan pool
is highly concentrated with the top 15 loans representing 72% of the pool
balance; the top two loans combined represent 30% of the pool balance. Ratings
may be subject to more downward pressure should values decline further on the
specially serviced loans or if currently performing loans with high Fitch loan
to values experience further cash flow declines.
As of the February 2013 distribution date, the pool's aggregate principal
balance has been reduced by 22.4% to $1.93 billion from $2.48 billion at
issuance. No loans have defeased since issuance. Interest shortfalls are
currently affecting classes G through T.
The largest contributor to expected losses is the DHL Center loan (2.9% of the
pool), which is secured by a 490,000 square foot (SF) distribution facility
operated and 100% leased by DHL Express (USA), Inc. (DHL). On Nov. 10, 2008,
DHL announced that it would stop shipping within the United States effective
Jan. 30, 2009. DHL no longer occupies this property; however, there is a
20-year lease in place that commenced in 2006. The lease is also guaranteed by
Deutsche Post AG (rated 'BBB+'). The loan has remained current as DHL
continues to pay rent, as well as provide onsite security and maintenance. The
servicer-reported year to date (YTD) September 2012 net operating income (NOI)
debt service coverage ratio (DSCR) was 1.29 times (x).
The next largest contributor to expected losses is the Sterling Portfolio loan
(2.5%), which is secured by four office buildings with a total of 402,399 SF.
All four office buildings are located within eight miles of each other in the
Nassau/Suffolk counties of Long Island, NY, approximately 40 miles outside of
Manhattan. Occupancy has recently improved to 85%, after declining from 89% in
December 2010 to 81% in December 2011. As a result, NOI DSCR has slightly
improved to 0.94x for YTD September 2012, compared to 0.82x at year end (YE)
December 2011. The partial interest-only loan has been amortizing since
January 2011. The loan remains current as of the February 2013 remittance
The third largest contributor to expected losses is the specially-serviced
Highwoods II Portfolio (1.4%), which is five Georgia office properties, two of
which are located in Norcross and the remaining three properties located in
Alpharetta. The properties have experienced cash flow issues due to occupancy
declines. The loan transferred to special servicing in October 2010 due to
imminent maturity default; the loan matured in January 2011. Servicer
negotiations with the borrower had failed, and the loan became lender real
estate owned (REO) in April 2012. The servicer has hired a third party
property management and leasing company to help stabilize the property and is
positioning the assets for sale at auction.
The IUU classes represent the B-note rakes of three separate loans, Intel
Corporate Building, U Haul 26 Portfolio, and U Haul SAC Portfolio. The A-notes
of all three loans are included in the pooled portion of the trust. Both the
U-Haul 26 and U Haul SAC portfolio loans are current. The Intel Corporate
Building notes transferred to special servicing in January 2011 due to
maturity default. Borrower negotiations fell through and the property became
lender real estate owned (REO) in September 2012. The property is 100% leased
to Intel Corp. (rated 'A+') through December 2015, however Intel has vacated
the property and currently subleases 69% of the net rentable area. Payments
continue to be remitted to the notes, and the servicer is trapping all excess
cash flow into a reserve account.
Fitch downgrades the following classes and assigns or revises Rating Outlooks
and Recovery Estimates (REs) as indicated:
--$15.4 million class B to 'Bsf' from 'BBsf'; Outlook Negative;
--$27.6 million class C to 'CCCsf' from 'B-sf'; RE 90%;
--$24.6 million class D to 'CCsf' from 'CCCsf'; RE 0%;
--$18.4 million class E to 'CCsf' from 'CCCsf'; RE 0%;
--$21.5 million class F to 'Csf' from 'CCsf'; RE 0%;
Fitch affirms the following classes and revises the Rating Outlook on class
A-J as indicated:
--$9 million class A-2 at 'AAAsf'; Outlook Stable;
--$92 million class A-3 at 'AAAsf'; Outlook Stable;
--$45.3 million class A-AB at 'AAAsf'; Outlook Stable;
--$1.1 billion class A-4 at 'AAAsf'; Outlook Stable;
--$245.6 million class A-M at 'AAAsf'; Outlook Stable;
--$221 million class A-J at 'BBsf'; Outlook to Negative from Stable;
--$21.5 million class G at 'Csf'; RE 0%;
--$16.8 million class H at 'Dsf'; RE 0%;
--Class J at 'Dsf'; RE 0%;
--Class K at 'Dsf'; RE 0%;
--Class L at 'Dsf'; RE 0%;
--Class M at 'Dsf'; RE 0%;
--Class N at 'Dsf'; RE 0%.
The balances for classes J, K, L, M, and N have been reduced to zero due to
realized losses. The class A-1 certificates have paid in full. Fitch does not
rate the class P, Q, S, and T. Fitch previously withdrew the ratings on the
interest-only class X-CP and X-CL certificates.
Fitch also downgrades the following non-pooled rake classes and revises Rating
Outlooks as indicated:
--$6.1 million class IUU-1 to 'BBsf' from 'BBB+sf'; Outlook to Negative from
--$2.6 million class IUU-2 to 'Bsf' from 'BBBsf'; Outlook to Negative from
--$3.6 million class IUU-3 to 'Bsf' from 'BBB-sf'; Outlook to Negative from
--$1.9 million class IUU-4 to 'CCsf' from 'BB+sf';
--$1.3 million class IUU-5 to 'CCsf' from 'BBsf';
--$908,999 class IUU-6 to 'CCsf' from 'BB-sf';
--$960,210 class IUU-7 to 'CCsf' from 'B+sf';
--$1 million class IUU-8 to 'CCsf' from 'Bsf';
--$1.1 million class IUU-9 to 'CCsf' from 'B-sf'.
Fitch does not rate the $6.9 million class IUU10.
Additional information on Fitch's criteria for analyzing U.S. CMBS
transactions is available in the Dec. 18, 2012 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'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria'
(Dec. 18, 2012).
Applicable Criteria and Related Research
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
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Benson Thomas, +1-212-908-0645
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Mary MacNeill, +1-212-908-0785
Sandro Scenga, +1-212-908-0278 (New York)
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