Approximately $278.6 Million of Structured Securities Affected
New York, January 25, 2013 -- Moody's Investors Service (Moody's) affirmed the ratings of 13 classes
of Merrill Lynch Financial Assets Inc., Commercial Mortgage
Pass-Through Certificates, Series 2005-Canada 17 as
follows:
Cl. A-1, Affirmed Aaa (sf); previously on Dec
7, 2005 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed Aaa (sf); previously on Dec
7, 2005 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed Aa2 (sf); previously on Dec 7,
2005 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed A2 (sf); previously on Dec 7,
2005 Definitive Rating Assigned A2 (sf)
Cl. D, Affirmed Baa2 (sf); previously on Dec 7,
2005 Definitive Rating Assigned Baa2 (sf)
Cl. E, Affirmed Baa3 (sf); previously on Dec 7,
2005 Definitive Rating Assigned Baa3 (sf)
Cl. F, Affirmed Ba1 (sf); previously on Dec 7,
2005 Definitive Rating Assigned Ba1 (sf)
Cl. G, Affirmed Ba2 (sf); previously on Dec 7,
2005 Definitive Rating Assigned Ba2 (sf)
Cl. H, Affirmed Ba3 (sf); previously on Dec 7,
2005 Definitive Rating Assigned Ba3 (sf)
Cl. J, Affirmed B2 (sf); previously on Feb 3,
2011 Downgraded to B2 (sf)
Cl. K, Affirmed B3 (sf); previously on Feb 3,
2011 Downgraded to B3 (sf)
Cl. L, Affirmed Caa1 (sf); previously on Feb 3,
2011 Downgraded to Caa1 (sf)
Cl. XC, Affirmed Ba3 (sf); previously on Feb 22,
2012 Downgraded to Ba3 (sf)
RATINGS RATIONALE
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio, Moody's stressed debt service coverage ratio
(DSCR) and the Herfindahl Index (Herf), remaining within acceptable
ranges. Based on our current base expected loss, the credit
enhancement levels for the affirmed classes are sufficient to maintain
their current ratings. The rating of the IO Class, Class
XC is consistent with the credit performance of its respective referenced
classes and thus is affirmed.
Moody's rating action reflects a base expected loss of 2.1%
of the current balance. At last review, Moody's base expected
loss was 2.2%. Moody's provides a current list of
base losses for conduit and fusion CMBS transactions on moodys.com
at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities ratings were issued.
Even so, a deviation from the expected range will not necessarily
result in a rating action nor does performance within expectations preclude
such actions. The decision to take (or not take) a rating action
is dependent on an assessment of a range of factors including, but
not exclusively, the performance metrics.
Primary sources of assumption uncertainty are the extent of growth in
the current macroeconomic environment given the weak pace of recovery
and commercial real estate property markets. Commercial real estate
property values are continuing to move in a modestly positive direction
along with a rise in investment activity and stabilization in core property
type performance. Limited new construction and moderate job growth
have aided this improvement. However, a consistent upward
trend will not be evident until the volume of investment activity steadily
increases for a significant period, non-performing properties
are cleared from the pipeline, and fears of a Euro area recession
are abated.
The hotel sector is performing strongly with nine straight quarters of
growth and the multifamily sector continues to show increases in demand
with a growing renter base and declining home ownership. Recovery
in the office sector continues at a measured pace with minimal additions
to supply. However, office demand is closely tied to employment,
where growth remains slow and employers are considering decreases in the
leased space per employee. Also, primary urban markets are
outperforming secondary suburban markets. Performance in the retail
sector continues to be mixed with retail rents declining for the past
four years, weak demand for new space and lackluster sales driven
by internet sales growth. Across all property sectors, the
availability of debt capital continues to improve with robust securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates.
Moody's central global macroeconomic scenario is for continued below-trend
growth in US GDP over the near term, with consumer spending remaining
soft in the US. Hurricane Sandy may skew near-term economic
data but is unlikely to have any long-term macroeconomic effects.
Primary downside risks include: a deeper than expected recession
in the euro area accompanied by deeper credit contraction; the potential
for a hard landing in major emerging markets, including China,
India and Brazil; an oil supply shock; albeit abated in recent
months; and given recent political gridlock, excessive fiscal
tightening in the US in 2013 leading the US into recession. However,
the Federal Reserve has shown signs of support for activity by continuing
with quantitative easing.
The methodologies used in this rating were "Moody's Approach to Rating
Fusion U.S. CMBS Transactions" published in April 2005,
"Moody's Approach to Rating Canadian CMBS" published in May 2000,
and "Moody's Approach to Rating Structured Finance Interest-Only
Securities" published in February 2012. The Interest-Only
Methodology was used for the rating of Classes XC. Please see the
Credit Policy page on www.moodys.com for a copy of these
methodologies.
Moody's review incorporated the use of the excel-based CMBS Conduit
Model v 2.62 which is used for both conduit and fusion transactions.
Conduit model results at the Aa2 (sf) level are driven by property type,
Moody's actual and stressed DSCR, and Moody's property quality grade
(which reflects the capitalization rate used by Moody's to estimate Moody's
value). Conduit model results at the B2 (sf) level are driven by
a paydown analysis based on the individual loan level Moody's LTV ratio.
Moody's Herfindahl score (Herf), a measure of loan level diversity,
is a primary determinant of pool level diversity and has a greater impact
on senior certificates. Other concentrations and correlations may
be considered in our analysis. Based on the model pooled credit
enhancement levels at Aa2 (sf) and B2 (sf), the remaining conduit
classes are either interpolated between these two data points or determined
based on a multiple or ratio of either of these two data points.
For fusion deals, the credit enhancement for loans with investment-grade
credit assessments is melded with the conduit model credit enhancement
into an overall model result. Fusion loan credit enhancement is
based on the credit assessment of the loan which corresponds to a range
of credit enhancement levels. Actual fusion credit enhancement
levels are selected based on loan level diversity, pool leverage
and other concentrations and correlations within the pool. Negative
pooling, or adding credit enhancement at the credit assessment level,
is incorporated for loans with similar credit assessments in the same
transaction.
The conduit model includes an IO calculator, which uses the following
inputs to calculate the proposed IO rating based on the published methodology:
original and current bond ratings and credit assessments; original
and current bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and IO type as defined in the
published methodology. The calculator then returns a calculated
IO rating based on both a target and mid-point. For example,
a target rating basis for a Baa3 (sf) rating is a 610 rating factor.
The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e.
the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf)
rating factor of 940). If the calculated IO rating factor is 700,
the CMBS IO calculator ver1.1 would provide both a Baa3 (sf) and
Ba1 (sf) IO indication for consideration by the rating committee.
Moody's uses a variation of Herf to measure diversity of loan size,
where a higher number represents greater diversity. Loan concentration
has an important bearing on potential rating volatility, including
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 13,
compared to 14 at last review.
In cases where the Herf falls below 20, Moody's employs also the
large loan/single borrower methodology. This methodology uses the
excel-based Large Loan Model v 8.5. The large loan
model derives credit enhancement levels based on an aggregation of adjusted
loan level proceeds derived from Moody's loan level LTV ratios.
Major adjustments to determining proceeds include leverage, loan
structure, property type, and sponsorship. These aggregated
proceeds are then further adjusted for any pooling benefits associated
with loan level diversity, other concentrations and correlations.
Moody's ratings are determined by a committee process that considers both
quantitative and qualitative factors. Therefore, the rating
outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through a review utilizing MOST®
(Moody's Surveillance Trends) Reports and a proprietary program that highlights
significant credit changes that have occurred in the last month as well
as cumulative changes since the last full transaction review. On
a periodic basis, Moody's also performs a full transaction review
that involves a rating committee and a press release. Moody's
prior transaction review is summarized in a press release dated January
26, 2012. Please see the ratings tab on the issuer / entity
page on moodys.com for the last rating action and the ratings history.
DEAL PERFORMANCE
As of the January 14, 2013 distribution date, the transaction's
aggregate certificate balance has decreased by 43% to $286.1
million from $502.8 million at securitization. The
Certificates are collateralized by 32 mortgage loans ranging in size from
less than 1% to 20% of the pool, with the top ten
loans representing 72% of the pool. The pool includes two
loans with investment-grade credit assessments, representing
15% of the pool.
Two loans, representing 4% of the pool, are on the
master servicer's watchlist. The watchlist includes loans which
meet certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of our
ongoing monitoring of a transaction, Moody's reviews the watchlist
to assess which loans have material issues that could impact performance.
One loan has been liquidated from the pool since securitization,
resulting in a realized loss of $189 thousand (11% loss
severity). There are currently no loans in special servicing.
Moody's was provided with a year 2011 operating results for 96%
of the pool. Moody's weighted average LTV is 79% compared
to 85% at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 14% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.0%.
Moody's actual and stressed DSCRs are 1.55X and 1.33X,
respectively, compared to 1.47X and 1.25X at last
review. Moody's actual DSCR is based on Moody's net cash flow (NCF)
and the loan's actual debt service. Moody's stressed DSCR is based
on Moody's NCF and a 9.25% stressed rate applied to the
loan balance.
The largest loan with a credit assessment is the College Square Loan ($22.5
million -- 7.9% of the pool), which is secured
by a 386,210 square foot anchored retail centre located in Ottawa,
Ontario. The center has maintained around 100% occupancy
since securitization. The center is anchored by Home Depot and
Loblaws. Performance has been stable. Moody's current credit
assessment and stressed DSCR are Aaa and 2.03X, respectively,
compared to Aaa and 1.93X at last review.
The second loan with a credit assessment is the InnVest CMBS Portfolio
II Loan ($20.8 million -- 7.3% of the
pool), which is secured by ten limited service hotels with 781 rooms.
The hotels are located in Quebec, Ontario, New Brunswick,
and Nova Scotia. As of December 2011 occupancy and RevPar were
60.5% and $58.8, respectively,
compared to 62.9% and $58.5 at last review.
Performance has slightly declined since last review but it was offset
by amortization. Moody's current credit assessment and stressed
DSCR are A3 and 2.13X, respectively, compared to A3
and 2.14X at last review.
The top three performing conduit loans represent 38% of the pool
balance. The largest loan is the TransGlobe Pooled Senior Loan
($57.1 million -- 20.0% of the pool)
which is secured by 25 multifamily properties containing a total of 2,302
units located across Ontario and Nova Scotia. The loan represents
a 55% interest in a first mortgage loan of $103.9
million. There is also a $11.0 million B note held
outside the trust. The loan previously was in special servicing
because the borrower obtained subordinate financing without the lender's
approval. The loan had been modified, three properties were
released and subordinated debt was paid in full. In June 2012 one
additional property was released and replaced with Canadian defeasance
collateral. The portfolio's performance has slightly declined since
last review due to lower revenues. As of December 2011 occupancy
was 93% compared to 97% at last review. Moody's LTV
and stressed DSCR are 91% and 1.01X, respectively,
compared to 88% and 1.03X at last review.
The second largest loan is the 2020 University Loan ($29.7
million -- 10.4% of the pool), which is secured
by a 446,253 square foot office property located in Montreal,
Quebec. As of August 2012 the properly was 89% leased,
the same as last review. Performance has been stable. Moody's
LTV and stressed DSCR are 83% and 1.24X, respectively,
compared to 87% and 1.18X at last review.
The third largest loan is the Calloway Calgary South East Loan ($21.3
million -- 7.4% of the pool), which is secured
by a 215,399 square foot retail property located in Calgary,
Alberta. As of April 2012 the properly was 99% leased,
compared to 100% at securitization . Performance has slightly
declined since last review due to higher expenses. Moody's LTV
and stressed DSCR are 78% and 1.14X, respectively,
compared to 76% and 1.17X at last review.
REGULATORY DISCLOSURES
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
In conducting surveillance of this credit, Moody's considered performance
data contained in servicer and remittance reports. Moody's obtains
servicer reports on this transaction on a periodic basis, at least
annually.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Dariusz Surmacz
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael Gerdes
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms 13 CMBS Classes of MLFA 2005-Canada 17
