Fitch Ratings has affirmed 21 classes of LB-UBS Commercial Mortgage Trust (LBUBS 2006-C7) commercial mortgage pass-through certificates series 2006-C7. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The affirmations reflect sufficient credit enhancement (CE) relative to Fitch expected losses. Fitch modeled losses of 11.8% of the remaining pool; expected losses on the original pool balance total 15.5%, including $198.8 million (6.6% of the original pool balance) in realized losses to date. Fitch has designated 37 loans (24%) as Fitch Loans of Concern, which includes 12 specially serviced assets (6.8%). Approximately 5% of the pool is scheduled to mature in 2015 and an additional 93% matures in 2016.
As of the January 2015 distribution date, the pool's aggregate principal balance has been reduced by 24.4% to $2.28 billion from $3.02 billion at issuance. Per the servicer reporting, six loans (23.5% of the pool) are defeased. Interest shortfalls are currently affecting classes A-J through F.
The largest contributor to expected losses is an 872,252 sf office property (5.1% of the pool) located in Atlanta, GA secured by two office buildings, a retail mall building and a three-level underground parking garage The loan was restructured in December 2012 with $83 million allocated to an A-note and $33 million to a B-note with a rate reduction to 4% and maturity extension to October 2016. In exchange, the borrower contributed additional equity capital of $13.5 million to fund reserves and outstanding advances and interest. Performance for the property continues to languish with occupancy of 66% as of September 2014. Net operating income debt service coverage ratio (NOI DSCR) for the A tranche was reported at 1.62x. The loan is current as of the January 2015 remittance. According to Reis, the Midtown/Pershing/Brookwood submarket of Atlanta had an office vacancy rate of 14.5% with average asking rents of $26.69 psf.
The next largest contributor to expected losses is an office property (2.8%) totaling 494,012 sf located in Atlanta, GA. The loan is secured by two office buildings connected by a seven-level parking structure. The loan was modified into an A/B note structure in December 2012 extending the maturity date to October 2016 with a rate reduction to 4%. As part of the modification, the borrower contributed additional equity capital of $4.1 million to fund reserves and outstanding advances and interest. As of September 2014, occupancy improved to 67% from 61% at YE 2013. Despite the improvement, NOI for the A tranche is barely sufficient to cover debt service with a DSCR of 1.01x as of September 2014. The loan is current as of the January 2015 remittance. According to Reis, the Midtown/Pershing/Brookwood submarket of Atlanta had an office vacancy rate of 14.5% with average asking rents of $26.69 psf.
The third largest contributor to expected losses is a portfolio of 38 office buildings totaling 988,129 sf (4.1%) located throughout the United States. The portfolio is generally classified as single-tenant and is leased to various federal and state government agencies of the United States. The loan transferred to special servicing in September 2011 for imminent monetary default and is in the process of foreclosure. The buildings are located in 14 states, average about 15 years in age and range in size from 3,255 sf to 178,000 sf. Approximately 23% of leases are scheduled to expire through the end of 2016 with an additional 28% expiring in 2017. The servicer is negotiating lease renewals and exploring options for resolution.
RATING SENSITIVITIES
Rating Outlooks on classes A-2 through A-M remain Stable due to sufficient CE and continued paydown. Although the defeasance adjusted CE for class A-M remains high relative to the rating category, upgrades were limited given the high concentration of loans maturing in an uncertain refinance environment in 2016 coupled with the potential for interest shortfalls associated with modified and specially serviced loans to impact the class. Distressed classes (those rated below 'B') may be subject to further downgrades as additional losses are realized.
Fitch affirms the following classes as indicated:
--$292.8 million class A-2 at 'AAAsf'; Outlook Stable;
--$16.8 million class A-AB at 'AAAsf'; Outlook Stable;
--$968.1 million class A-3 at 'AAAsf'; Outlook Stable;
--$299.8 million class A-1A at 'AAAsf'; Outlook Stable;
--$302 million class A-M at 'Asf'; Outlook Stable;
--$294.4 million class A-J at 'CCCsf'; RE 55%;
--$22.6 million class B at 'CCCsf'; RE 0%;
--$30.2 million class C at 'CCCsf'; RE 0%;
--$30.2 million class D at 'CCsf'; RE 0%;
--$26.4 million class E at 'Csf'; RE 0%;
--$1.2 million class F at 'Dsf'; RE 0%;
--$0 class G at 'Dsf'; RE 0%;
--$0 class H at 'Dsf'; RE 0%;
--$0 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%;
--$0 class P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%;
--$0 class S at 'Dsf'; RE 0%.
Class A-1 has paid in full. Fitch does not rate the class T certificates. Fitch previously withdrew the ratings on the interest-only class X-CP, X-CL and X-W certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 10, 2014 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' (Aug. 4, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 10, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978858
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