Fitch Affirms 16 Classes of LBUBS 2007-C2

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed 16 classes of LB-UBS Commercial Mortgage Trust (LBUBS) commercial mortgage pass-through certificates series 2007-C2. A full list of rating actions follows at the end of this ratings action commentary.

KEY RATING DRIVERS

The affirmations reflect sufficient credit enhancement of the remaining classes relative to Fitch's expected losses. Fitch modeled losses of 7.8% of the remaining pool; expected losses on the original pool balance total 16.3%, including $426.8 million (12% of the original pool balance) in realized losses to date. Fitch has designated 30 loans (16%) as Fitch Loans of Concern, which includes eight specially serviced assets (3.9%).

As of the July 2016 distribution date, the pool's aggregate principal balance has been reduced by 44.3% to $1.98 billion from $3.55 billion at issuance. The pool is concentrated with the top four loans representing 48% of the pool balance; these loans are secured by iconic class-A office properties in strong office submarkets of Washington D.C., and Chicago with investment grade characteristics. Office concentration in the pool remains high at 56.7%. Loan maturities are also concentrated with over 98% of the pool scheduled to mature within the next 12 months. There are 17 defeased loans (12.7%). Interest shortfalls are currently affecting class A-J and classes K through T.

The largest contributors to expected losses are three loans secured by office buildings located in Louisville, KY loan (1.7%), McLeansville, NC (1.6%), and Meridian, ID (1.6%). All three properties are 100% leased to Citicorp North America/Citigroup Inc. (rated 'A' by Fitch) through December 2019. Citigroup Inc. vacated both the Louisville, KY and McLeansville, NC properties prior to its lease expirations and now subleases the properties to Humana Inc. and LabCorp, respectively. Citigroup continues to occupy the Meridian, ID property. The subject loans all mature in April 2017. The year end (YE) 2015 net operating income (NOI) debt service coverage ratio (DSCR) has reported at 1.17x for the three loans since issuance. The loans remain current as of the July 2016 payment date. Fitch has further stressed the cap rates on the subject properties in its analysis due to the properties' single tenancy and tertiary office markets. Fitch has calculated losses based on in-place cash flow and stressed cap rates; however, losses may be mitigated due to the credit leases expirations occurring over 1.5 years past the loan maturities.

The next largest contributor to expected losses is the Watergate 600 loan, the third largest loan in the pool (6.7% of the pool), which is secured by a 12-story, 289,286 square foot (sf) office building in Washington, D.C. Occupancy has been stable, reporting at 96% per the March 2016 rent roll, compared to 98% for June 2015 and 100% at issuance. The two major tenants at the property include Atlantic Media (65% net rentable area [NRA]) whose lease is through 2023, and Blank Rome LLP (29% NRA) whose lease expires in December 2018. The subject loan matures in April 2017.

The NOI DSCR reported at 1.21x for year to date March 2016, compared to 1.26x for YE December 2015. As of July 2016, there is over $1 million in tenant and leasing cost reserves. The loan remains current as of the July 2016 payment date. Although Fitch calculated losses based on in-place cash flow and a stressed cap rate, losses may be mitigated given the strong location and stable performance of the asset.

RATING SENSITIVITIES

The Rating Outlooks on classes A-3 and A-1A are Stable due to sufficient credit enhancement, continued paydown, and increased defeasance. The Negative Outlook on class A-M reflects above-average loan concentration concerns, in addition to the maturity concentrations over the next 12 months. The Negative Outlook also reflects concerns on several of the top 15 loans including low DSCRs, plus major tenant vacancies and rollover risks. Class A-M was also previously impacted by interest shortfalls, and due to the class' current position in the waterfall the class is susceptible to future interest shortfalls. Should actual loses exceed Fitch expectations and/or future interest shortfalls occur and continue for an extended period of time, class A-M may be subjected to future downward rating actions.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch affirms the following classes:

--$1 billion class A-3 at 'AAAsf', Outlook Stable;

--$307 million class A-1A at 'AAAsf', Outlook Stable;

--$355.4 million class A-M at 'Asf', Outlook Negative;

--$284 million class A-J at 'Dsf', RE 50%;

--$0 class B at 'Dsf', RE 0%;

--$0 class C at 'Dsf', RE 0%;

--$0 class D at 'Dsf', RE 0%;

--$0 class E at 'Dsf', RE 0%;

--$0 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%.

The class A-1, A-2 and A-AB certificates have paid in full. Fitch does not rate the class P, Q, S and T certificates. Fitch previously withdrew the ratings on the interest-only class X-CP, X-W and X-CL certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009650

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009650

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160728006475/en/

Fitch Ratings
Primary Analyst
Benson Thomas
Director
+1-212-908-0645
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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