DBRS Downgrades One Class of Banc of America Re-REMIC Trust 2009-UBER2 Commercial Mortgage Pass-Through Certificates, Confirms 11 Others

DBRS has today downgraded the rating of the following class of Banc of America Re-REMIC Trust 2009-UBER2 Commercial Mortgage Pass-Through Certificates and has added the Interest in Arrears designation. As a result of the downgrade, DBRS has removed the class from Under Review with Negative Implications, where it was placed on April 4, 2013.

– Class A-4B-7 to A (sf) from AAA (sf)

In addition, DBRS has confirmed the ratings of the eleven remaining classes in the transaction as follows:

– Class A-4A-A at AAA (sf)
– Class A-4A-B at AAA (sf)
– Class A-4A-C at AAA (sf)
– Class A-4B-1 at AAA (sf)
– Class A-4B-2 at A (sf)
– Class A-4B-3 at A (high) (sf)
– Class A-4B-4 at AA (low) (sf)
– Class A-4B-5 at AAA (sf)
– Class A-4B-6 at AA (sf)
– Class A-4B-8 at AAA (sf)
– Class A-4B-9 at A (sf)

All trends are Stable.

The rating downgrade is based on the outlook for the largest loan (Prospectus ID#1, The Pier at Caesar’s) in one of the underlying CMBS transactions, MSCI 2007-HQ13, which contributed $16,575,000 of the A-3 bond to the Class A-4A-B pooled bond and the A-4B-7 non-pooled bond in the ReREMIC structure, as of the May 2013 remittance. While DBRS did not originally designate Class A-4B-7 as having interest in arrears, upon further review, because the interest accrual is not capped at available interest, but accrued at the underlying pass-through rate of the contributed class, the Interest in Arrears designation has been added to Class A4B-7. DBRS expects the shorted interest will be reimbursed upon resolution of the specially serviced loans and may take a number of months following the resolution. The A-4A-B pooled bond that corresponds to the MSCI 2007-HQ13 transaction is not currently being shorted interest. However, DBRS will monitor this bond closely, as a sudden increase in the interest shortfalls to the MSCI 2007-HQ13 transaction could potentially cause an interest shortfall to be passed through to the A-4B-7 bond in the ReREMIC structure.

The Pier at Caesar’s is a retail center located along the Boardwalk in front of the Caesars Atlantic City casino and hotel. The property was constructed in 2004 and comprises approximately 300,000 square feet (sf) of space. At issuance, the property was valued, on an “as-is” basis, at $187.5 million, with a stabilized value of $210 million. The trust loan of $80.5 million implied an as-is loan-to-value (LTV) ratio at issuance of 42% and the loan was interest only for the entire ten-year loan term. At issuance, the property was approximately 75% occupied, with no single tenant occupying more than 4% of the NRA. Although occupancy has improved over the years since securitization, the property suffered from low sales and in 2009, the borrower reported that many tenants were paying percentage rents in lieu of base rent and were requesting rent relief. The loan transferred to special servicing in October 2009 and the trust acquired title to the property in 2011.

Since the transfer to special servicing, the value of the property has declined precipitously and the most recent appraisal from January 2013 shows a value of just $11 million for the property. The special servicer reports that the building is in need of a number of capital repairs and cites major market difficulty in the wake of Hurricane Sandy, which dealt significant damage to the area in late 2012 – both factors are noted as having contributed to the extremely low value. Given the steep decline in value and the outstanding advances, it is likely that the liquidation of the asset will result in a loss of at least 100% to the trust.

With the March 2013 remittance, the servicer applied an appraisal reduction of $80.0 million and was reimbursed for $1.8 million in non-recoverable advances, which resulted in interest shortfalls rising all the way to the underlying Class A-2 bond. It is unclear at this time when those shortfalls are expected to be repaid. Correspondingly, the ReREMIC share of the underlying interest shortfall was passed through to the A-4B-7 bond.

Following the previously mentioned developments regarding The Pier at Caesar’s loan, in April 2013, DBRS placed Class A-4B-7 (which is the non-pooled bond, with payments directly corresponding to the performance of the underlying A-3 certificate in the MSC 2007-HQ13 transaction), Under Review with Negative Implications. With this most recent surveillance review, DBRS has downgraded the A-4B-7 bond from AAA (sf) to A (sf), primarily driven by the outlook for The Pier at Caesar’s loan. With this surveillance review, the DBRS-simulated loss for the loan assumes a loss severity of 112.6%. Although the underlying A-3 bond also contributed to the pooled A-4A-B bond in the ReREMIC, DBRS believes the pooled nature of that bond, with a total of five contributing certificates, and the credit support provided by each respective junior participation, insulates it from significant credit erosion as related to these developments, thereby supporting the rating confirmation of the pooled A-4A-B certificate.

With respect to the remaining eight underlying contributed certificates, DBRS analyzed each based on the individual transaction structure and the performance of the transaction’s respective loans. DBRS modeled each transaction independently and, in its review, focused on the larger assets, the specially serviced loans and the loans on the servicer’s watchlist, in an effort to most appropriately model the pivotal loans within the transactions that carry a higher likelihood of default. To simulate realized losses expected on all delinquent loans, including 30-day delinquencies, DBRS either modeled these loans with 100% probability of default and the corresponding loss severity, reflective of debt yield derived by using the most recent loan-level cash flow or ran a liquidation scenario using a haircut to the latest appraisal to account for additional expenses and/or potential future value decline.

The resulting weighted-average credit enhancement requirements for all the loans in the underlying pools, at each respective rating category, were then compared to the actual credit enhancement provided to the contributed certificates within the underlying CMBS structures. Based on that comparison, the eleven rating confirmations were appropriate.

The ratings are dependent on the continued performance of the underlying transactions.

The ratings do not address the likelihood of additional trust fund expenses.

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

The applicable methodologies is CMBS Rating Methodology and CMBS North American Surveillance Methodology, which can be found on our website under Methodologies

This rating is endorsed by DBRS Ratings Limited for use in the European Union.