Approximately $355.3 Million of Structured Securities Affected
New York, February 09, 2011 -- Moody's Investors Service (Moody's) affirmed 15 classes of Merrill Lynch
Financial Assets Inc., Commercial Mortgage Pass-Through
Certificates, Series 2007-Canada 21 as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Jan 30, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jan 30, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XP-1, Affirmed at Aaa (sf); previously on
Jan 30, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XP-2, Affirmed at Aaa (sf); previously on
Jan 30, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XC, Affirmed at Aaa (sf); previously on Jan 30,
2007 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aa2 (sf); previously on Jan 30,
2007 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed at A2 (sf); previously on Jan 30,
2007 Definitive Rating Assigned A2 (sf)
Cl. D, Affirmed at Baa2 (sf); previously on Jan 30,
2007 Definitive Rating Assigned Baa2 (sf)
Cl. E, Affirmed at Baa3 (sf); previously on Jan 30,
2007 Definitive Rating Assigned Baa3 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on Jan 30,
2007 Definitive Rating Assigned Ba1 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Jan 30,
2007 Definitive Rating Assigned Ba2 (sf)
Cl. H, Affirmed at Ba3 (sf); previously on Jan 30,
2007 Definitive Rating Assigned Ba3 (sf)
Cl. J, Affirmed at B1 (sf); previously on Jan 30,
2007 Definitive Rating Assigned B1 (sf)
Cl. K, Affirmed at B3 (sf); previously on Aug 20,
2009 Downgraded to B3 (sf)
Cl. L, Affirmed at Caa1 (sf); previously on Aug 20,
2009 Downgraded to Caa1 (sf)
RATINGS RATIONALE
The affirmations are due to key parameters, including Moody's
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.
Moody's rating action reflects a cumulative base expected loss of
3.0% of the current balance, the same as at last review.
Moody's stressed scenario loss is 9.0% of the current
balance. Moody's provides a current list of base and stress
scenario 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.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these
expectations. Performance that falls outside an acceptable range
of the key parameters may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated during
the current review. Even so, deviation from the expected
range will not necessarily result in a rating action. There may
be mitigating or offsetting factors to an improvement or decline in collateral
performance, such as increased subordination levels due to amortization
and loan payoffs or a decline in subordination due to realized losses.
Primary sources of assumption uncertainty are the current stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2011;
we expect overall a sluggish recovery in most of the world's largest
economies, returning to trend growth rate with elevated fiscal deficits
and persistent unemployment levels.
The principal methodology used in this rating was "Moody's Approach
to Rating Canadian CMBS " published on May 26, 2000.
In addition to methodologies and research available on moodys.com,
Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.50 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 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 level are driven by a pay down 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 and B2, 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 estimates is melded with the conduit model credit enhancement into
an overall model result. Fusion loan credit enhancement is based
on the credit estimate 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 estimate level, is incorporated
for loans with similar credit estimates in the same transaction.
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 20
compared to 23 at Moody's prior review.
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 two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's prior full
review is summarized in a press release dated August 8,2009.
Please see the ratings tab on the issuer / entity page on moodys.com
for the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
DEAL PERFORMANCE
As of the January 12, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 8% to $355.4
million from $385.2 million at securitization. The
Certificates are collateralized by 40 mortgage loans ranging in size from
less than 1% to 11% of the pool, with the top ten
loans representing 53% of the pool.
Ten loans, representing 26% of the pool, are on the
master servicer's watchlist. At last review the watchlist
contained 5 loans representing 15% of the pool. 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.
There are no realized losses to date. Currently there are no specially
serviced or delinquent loans.
Moody's has assumed a high default probability for two poorly performing
loans representing 8.4% of the pool and has estimated an
aggregate $5.9 million loss (15% expected loss based
on a 50% probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 73%
of the pool. Excluding troubled loans, Moody's weighted
average LTV is 88% compared to 98% at Moody's prior
review. Moody's net cash flow reflects a weighted average
haircut of 11% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of
9.4%.
Excluding troubled loans, Moody's actual and stressed DSCRs
are 1.50X and 1.21X, respectively, compared
to 1.37X and 1.07X 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 top three performing conduit loans represent 24% of the pool
balance. The largest loan is the GTA Industrial Portfolio Loan
($40.2 million -- 11.3% of the pool)
which is secured by eight industrial properties located in the greater
Toronto area. The combined occupancy was 99% as of December
2009 compared to 98% at last review. Performance has improved
due to increased rental revenues. Moody's LTV and stressed DSCR
are 82% and 1.23X, respectively, compared to
98% and 1.02X at last review.
The second largest loan is the McFarlane Tower Loan ($24.6
million -- 7% of the pool), which is secured by an 18
story, 236,000 square foot office building located in the
downtown west submarket of Calgary Alberta. The portfolio was 93%
leased as of October 2010, which is in line with last review.
Performance has been improved since last review due to increased rental
revenues. Moody's LTV and stressed DSCR are 83% and 1.27X,
respectively, compared to 98% and 1.08X at last review.
The third largest loan is the 550-11th Avenue Office Building Loan
($19.2 million -- 5.4% of the pool),
which is secured by an 11 story, 97,000 square foot office
property located in the financial core of downtown Calgary, Alberta.
The loan is on the watch list due to low occupancy levels of 60%-70%
in 2009, however performance has recently improved and occupancy
has risen to 85%, compared to 94% at securitization.
Moody's has incorporated the recent increased ccupancy in its analysis.
Moody's LTV and stressed DSCR are 137% and 0.75X,
respectively, compared to 113% and 0.91X at last review
.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's investors
Service information; and confidential and proprietary Moody's
Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of maintaining
a credit rating.
New York
Brad Kamedulski
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms 15 CMBS Classes of MLFA 2007-CAN21
