Fitch Affirms LB-UBS 2007-C6

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed 20 classes of LB-UBS Commercial Mortgage Trust (LBUBS) commercial mortgage pass-through certificates series 2007-C6. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations reflect sufficient credit enhancement (CE) relative to Fitch expected losses. Fitch modeled losses of 17.1% of the remaining pool; expected losses on the original pool balance total 15.1%, including $158.3 million (5.3% of the original pool balance) in realized losses to date. Fitch has designated 68 loans (48%) as Fitch Loans of Concern, which includes 49 specially serviced assets (22%). The majority of the specially serviced loans are REO (19%) and primarily consist of the $305.9 million PECO Portfolio loans (17.9%).

As of the April 2016 distribution date, the pool's aggregate principal balance has been reduced by 42.6% to $1.71 billion from $2.98 billion at issuance. Per the servicer reporting, six loans (5.6% of the pool) are defeased. Interest shortfalls are currently affecting classes J through T.

The largest contributor to expected losses is the specially-serviced PECO Portfolio loan (17.9% of the pool), which consists of 39 cross-collateralized loans totaling $305.9 million originally secured by 39 retail properties totaling 4.25 million square feet (sf) located across 13 states. Primarily grocery-anchored, the portfolio's major tenants include Tops Markets, Bi-Lo Grocery, Big Lots, and Publix. The portfolio experienced cash flow issues due to turnover and leasing costs at several of the properties. The loan had transferred to special servicing in August 2012 due to the borrower's request for a loan modification, and subsequently went into payment default in September 2012. A deed-in-lieu (DIL) of foreclosure agreement was executed in 2012, which provided for all 39 properties to become REO by May 2015.

The special servicer's current strategy for the majority of the properties within the portfolio is to maximize occupancy and address deferred maintenance items. Four properties have sold to date, with proceeds applied across all 39 loans on a pro-rata basis. Occupancy for the current portfolio reported at 73% as of December 2015.

The next largest contributor to Fitch expected losses is the Islandia Shopping Center loan (4.3%) which is collateralized by a 376,774 sf retail center located in Islandia, NY (Long Island). The property's anchors are a Wal-Mart and a Stop & Shop. Additional major tenants include Dave & Busters and TJ Maxx.

The property transferred to special servicing in March 2013 due to imminent default and a loan modification request, and subsequently went into payment default in October 2013. The property had suffered cash flow issues due to reduction in the property's revenue from tenant vacancies, reduced rental rates, and delinquent rental payments. The loan was modified in April 2014 while in special servicing, which included an extension of the loans maturity date, a reduction of the interest-only period with amortization scheduled to begin in year two, a reduced initial interest rate with scheduled rate increases, and a bifurcation of the loan into a senior (currently $62.5 million) and junior ($10.1 million) component. Although losses are not imminent, any recovery to the B-note is contingent upon full recovery to the A-note proceeds at the loan's maturity in July 2021. Unless collateral performance improves, recovery to the B-note component is unlikely. The loan was returned to the master servicer in May 2015 and remains current under the modified terms. As of YE 2015, occupancy reported at 95% with NOI DSCR reporting at 1.16x.

The third largest contributor to losses is the Greensboro Park loan (6.3%). The property is collateralized by two office buildings totaling 497,785 sf located in the Tyson's Corner area of McLean, VA. The loan has been transferred to special servicing and modified twice due to cash flow issues from occupancy declines. The initial transfer occurred in April 2010, at which time the loan was assumed by the current borrower and the loan was modified with a maturity date extension to June 2015. The most recent transfer occurred in February 2015 for imminent maturity default and was modified with a maturity date extension to June 2017 with a forbearance option to extend to 2018. In addition, the modification required a $2 million principal paydown, a borrower-funded $5.5 million capex reserve, and an additional $15 million payment guaranty by the borrower. The loan transferred back to the master servicer in August 2015 and has remained current under the modified terms.

The current borrower has been successful in executing new leases after major tenant vacancies and rollover, including CVENT, Inc. (previously 17% of the NRA) which vacated the property at its April 2014 lease expiration. Per the February 2016 rent roll, the property is 76% occupied and includes approximately 65,000 sf (13%) in new 2016 leases including the largest tenant, BB&T Bank (7.2% NRA) with a current lease expiring in September 2025. An additional 69,000 sf (14%) in new leases have also been executed for upcoming 2016 occupancies. The YE 2015 DSCR remains low at 0.77x compared to 0.73x at YE 2014, but is expected to see improvement going forward due to new leasing and burning off of rent concessions.

RATING SENSITIVITIES

The Negative Outlook on classes A-M and A-MFL reflects the potential risk for greater than expected losses on the specially serviced loans, primarily the PECO Portfolio. The uncertainty surrounding the ultimate resolution and timing of the loans, coupled with the potential for additional performance volatility, may subject the classes to future downgrades should expected losses increase Upgrades are not likely due to the high concentration of specially serviced assets.

DUE DILIGENCE USAGE

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

Fitch has affirmed the following ratings:

--$703.9 million class A-4 at 'AAAsf'; Outlook Stable;

--$270.2 million class A-1A at 'AAAsf'; Outlook Stable;

--$227.9 million class A-M at 'Asf'; Outlook Negative;

--$70 million class A-MFL at 'Asf'; Outlook Negative;

--$156.4 million class A-J at 'CCCsf'; RE 95%;

--$33.5 million class B at 'CCCsf'; RE 0%;

--$37.2 million class C at 'CCCsf'; RE 0%;

--$33.5 million class D at 'CCsf'; RE 0%;

--$29.8 million class E at 'CCsf'; RE 0%;

--$29.8 million class F at 'Csf'; RE 0%;

--$33.5 million class G at 'Csf'; RE 0%;

--$37.2 million class H at 'Csf'; RE 0%;

--$41 million class J at 'Csf'; RE 0%;

--$5.5 million 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%.

The class A-1, A-2, A-2FL, A-3 and A-AB certificates have paid in full. Fitch does not rate the class T certificates. Fitch previously withdrew the rating on the interest-only class X certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

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 Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004416

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004416

Endorsement Policyhttps://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/20160512006500/en/

Fitch Ratings
Primary Analyst:
Benson Thomas, +1-212-908-0645
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
[email protected]

Source: Fitch Ratings

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