DBRS Confirms 14, Downgrades Six Classes of Wachovia 2004-C15

DBRS has today downgraded six classes in the Wachovia Bank Commercial Mortgage Trust, Series 2004-C15 transaction, Classes J through O; those same classes have also been placed on trend Negative. In addition, DBRS has confirmed Classes A-1 through H with a Stable trend. The shadow ratings on 175 West Jackson (10.0% of the pool) and Coastal Grand Mall (8.1% of the pool) have been confirmed, and the rake bonds associated with the non-pooled 175 West Jackson B-note are also confirmed.

The downgrades are a result of the following: the uncertainty surrounding the refinance of the second largest loan in the pool (180 Maiden Lane, 8.4% of the pool) and the potential need to transfer that loan to special servicing, the number of loans added to the DBRS HotList (six loans, 13.1% of the pool, including 180 Maiden Lane) and the losses estimated from two specially serviced loans (2.3% of the pool). While losses from two loans in special servicing are currently projected to be contained to the unrated Class P, the trust may incur additional non-recoverable expenses and fees in the event that the 180 Maiden Lane loan transfers to special servicing. The resulting projected losses erode the credit enhancement to the lower rated classes, prompting the downgrades. Primarily because of the HotList loans, DBRS is leaving Classes J through O on trend Negative.

The transaction has seasoned for five years. Property value deterioration since origination is not a major concern, with regard to the performance of this transaction, because the appraised values are as of 2004. In addition to the seasoning, the transaction benefits from a large amount of defeasance, with 9.3% of the pool comprised of securities.

DBRS added 180 Maiden Lane (8.4% of the pool) to the HotList because of its upcoming maturity, in November 2009. The loan is likely to be transferred to the special servicer, at the request of the borrower, in anticipation of a maturity default, given the loan size. The loan is collateralized by an office building in New York City, which is 74% leased to Goldman Sachs through 2014, who in turn, has leased all of its space to AIG. AIG continues to move into the space. In addition to the trust pooled amount, which has pari passu debt (outside of the trust), there is a non-pooled B-note within the trust, a C-note and mezzanine debt (both held outside of the trust). The estimated DBRS A-note refinance DSCR is strong at 1.62x, considering a 9% debt constant. DBRS has removed the shadow rating, due to the probable special servicing transfer and potential to incur fees.

As mentioned above, the trust also contains a non-pooled B-note associated with this loan structured as rake bonds. The leverage point for the A and B-notes at $235 psf is attractive, and at this point, DBRS would not anticipate losses beyond servicing workout fees. Considering these fees, DBRS has assigned Negative trends to Classes 180-A through 180-F, and has downgraded the lowest rake bond, Class 180-G to CCC, and kept it Under Review with Negative Implications because this class will be directly impacted by interest shortfalls from special servicing fees.

Loans on the HotList (besides 180 Maiden Lane) are primarily loans secured by properties suffering from high vacancies. These properties are located in soft markets and all have DSCRs well below 1.0x. DBRS will continue to monitor these loans.

Of the two loans in special servicing, DBRS has estimated a combined loss of approximately $5.5 million to the unrated Class P. One loan, Waterstone Landing Apartments, 1.1% of the pool, was transferred to special servicing because of a maturity default. It is likely to be extended. The other loan, Penn’s Purchase II, 1.2% of the pool transferred to special servicing due to payment default. The loan is secured by an outlet mall in Lahaska, Pennsylvania (Buck’s County). DBRS loss estimates on this loan are high due to the remote location and the outlet nature, which have a history of higher loss severities within CMBS.

As part of its review, DBRS analyzed the top ten loans, the servicer’s watchlist and the six specially serviced loans, which comprises approximately 55% of the current pool balance.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance rating.