Approximately $333.8 Million of Structured Securities Affected
New York, February 16, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of seventeen
classes of Merrill Lynch Financial Assets Inc., Commercial
Mortgage Pass-Through Certificates, Series 2005-Canada
16 as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Aaa (sf)
Cl. XP-1, Affirmed at Aaa (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Aaa (sf)
Cl. XP-2, Affirmed at Aaa (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Aaa (sf)
Cl. XC, Affirmed at Aaa (sf); previously on Jul 26,
2005 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aa2 (sf); previously on Jul 26,
2005 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed at A2 (sf); previously on Jul 26,
2005 Definitive Rating Assigned A2 (sf)
Cl. D-1, Affirmed at Baa2 (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Baa2 (sf)
Cl. D-2, Affirmed at Baa2 (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Baa2 (sf)
Cl. E-1, Affirmed at Baa3 (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Baa3 (sf)
Cl. E-2, Affirmed at Baa3 (sf); previously on
Jul 26, 2005 Definitive Rating Assigned Baa3 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on Jul 26,
2005 Definitive Rating Assigned Ba1 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Jul 26,
2005 Definitive Rating Assigned Ba2 (sf)
Cl. H, Affirmed at B1 (sf); previously on Oct 1,
2009 Downgraded to B1 (sf)
Cl. J, Affirmed at B2 (sf); previously on Oct 1,
2009 Downgraded to B2 (sf)
Cl. K, Affirmed at Caa1 (sf); previously on Oct 1,
2009 Downgraded to Caa1 (sf)
Cl. L, Affirmed at Caa2 (sf); previously on Oct 1,
2009 Downgraded to Caa2 (sf)
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio, Moody's stressed 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 cumulative base expected and stressed scenario
loss estimates of 1.7% and 3.8% of the current
pooled balance, respectively. At last review, Moody's
cumulative base expected loss estimate was 2.2%.
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 methodologies used in this rating were "Moody's Approach
to Rating Canadian CMBS" published in May 2000, "Moody's
Approach to to Rating Large Loan/Single Borrower Transactions" published
on July 7, 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 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 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 underlying rating 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 underlying rating 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 13
compared to 19 at Moody's prior full review.
In cases where the Herf falls below 20, Moody's employs the large
loan/single borrower methodology. This methodology uses the excel-based
Large Loan Model v 8.0. 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 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 October 1, 2009. 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 February 12, 2011 distribution date, the transaction's
aggregate certificate balance decreased by 27% to $333.8
million from $458.7 million at securitization. The
Certificates are collateralized by 38 mortgage loans ranging in size from
less than 1% to 11.5% of the pool, with the
top ten loans representing 70% of the pool. The pool does
not contain any defeased loans. Four loans, representing
32% of the pool, have investment grade credit estimates.
Three loans, representing 8% 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.
The pool has not experienced any realized losses to date and there are
no special serviced or delinquent loans.
Moody's has assumed a high default probability for two of the loans on
the watchlist representing 7% of the pool. Moody's
has estimated a $2.1 million loss (based on a 41%
probability of default and 21% loss given default on average) from
the troubled loans.
Moody's was provided with full year 2009 operating results for 98%
of the pool. Excluding troubled loans and loans with credit estimates,
Moody's weighted average LTV is 71% compared to 83% at last
full review. Moody's net cash flow reflects a weighted average
haircut of 12% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of 8.8%.
Excluding troubled loans and loans with credit estimates, Moody's
actual and stressed DSCRs are 1.61X and 1.38X, respectively,
compared to 1.48X and 1.23X 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 estimate is the EPR Pooled Senior Interest
Loan ($38.5 million -- 11.5%),
which is a 50% pari passu interest in a $77.4 million
first mortgage. The loan is secured by four separate multiplex
anchored retail plazas totaling 985,000 square feet (SF).
All four multiplexes are operated by AMC Cinemas. The portfolio's
weighted average occupancy on December 2009 was 98% as compared
to 99% at last review. The sponsor, Entertainment
Properties Trust (Baa3, stable outlook), reports $2.9
billion of assets including 96 multiplex theatres as of September 2010.
The loan benefits from a 20 year amortization schedule and has amortized
19% since securitization and 5% since last review.
Moody's credit estimate and stressed DSCR are Aaa and 3.21X,
respectively, compared to Aaa and 3.0X at last review.
The second loan with a credit estimate is the RioCan Mega Centre Notre
Dame Loan ($31.6 million -- 9.5%),
which is secured by a 182,000 SF portion of a 495,000 SF shadow
anchored retail center located in Montreal, Quebec. The loan
is full recourse to RioCan REIT, Canada's largest REIT.
The collateral was 100% leased as on February 2010, which
is the same as at securitization. Only 15% of the leases
expire in 2011 through 2012. Moody's credit estimate is Baa3,
the same as at last review.
The third loan with a credit estimate is the Calloway St. Catharines
Loan ($27.6 million -- 8.3%), which
is secured by a Wal-Mart anchored power center located southwest
of Toronto near the U.S. border. The property was
100% leased as of July 27, 2010 compared to 96% at
last review. Wal-Mart's lease runs through August
2019 and only 10% of the property's leases expire in 2011 through
2012. The loan is full recourse to Calloway REIT, which has
an ownership interest in 117 Canadian retail properties totaling 24 million
SF. Moody's credit estimate and stressed DSCR are A2 and
1.46X, respectively, compared to A2 and 1.42X
at last review.
The fourth loan with a credit estimate is the U-Haul Canada Portfolio
($10.0 million -- 3%), which consists
of five cross-collateralized loans each secured by a separate self
storage facility. The portfolio's weighted average occupancy
as of March 2010 was 91%, compared to 88% at securitization.
Moody's credit estimate and stressed DSCR are Aa2 and 2.29X,
respectively, compared to Baa1 and 1.60X at last review.
The top three conduit loans represent 23.4% of the pool.
The largest conduit loan is the Grant Park Shopping Centre Loan ($30.1
million - 9%), which is secured by a 392,000
SF anchored community shopping center located in Winnipeg, Manitoba.
The property was 100% leased on November 30, 2010 as compared
to 98% at last review. Major tenants include Zellers (30%
of the NRA; lease expiration 2016), Safeway (15% of
the NRA; lease expiration 2014) and Empire Theatres Limited (8%
of the NRA; lease expiration 2013). Moody's LTV and stressed
DSCR are 74% and 1.35X, respectively, as compared
to 74% and 1.36X at last review.
The second largest conduit loan is Kitchener Food Basics Loan ($26.3
million -- 7.9%), which is secured by a 169,000
SF retail center located in Kitchener, Ontario. The center
was 100% leased on April 9, 2010 compared to 98% at
last review. The loan is partial recourse to First Capital Realty
(Moody's senior unsecured rating Baa3, stable outlook). Moody's
LTV and stressed DSCR are 98% and .94X, respectively,
as compared to 97% and .95X at last review.
The third largest conduit loan is the Rona Distribution Centre Loan ($21.8
million -- 6.5%), which is secured by a 790,000
square foot industrial building located in suburban Montreal, Quebec.
The property is 100% leased to Rona Inc. through August
2019. Rona is the largest Canadian distributor and retailer of
hardware, renovation and gardening products. Moody's LTV
and stressed DSCR are 75% and 1.23X, respectively,
compared to 78% and 1.24X at last review.
New York
Peter Simon
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 17 CMBS Classes of MLFA 2005-Canada 16
