Approximately $357 Million of Structured Securities Affected
New York, March 23, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 18 classes
of Real Estate Asset Liquidity Trust Commercial Mortgage Pass-Through
Certificates, Series 2006-2 as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Aaa (sf)
Cl. XP-1, Affirmed at Aaa (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Aaa (sf)
Cl. XC-1, Affirmed at Aaa (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Aaa (sf)
Cl. XP-2, Affirmed at Aaa (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Aaa (sf)
Cl. XC-2, Affirmed at Aaa (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aa2 (sf); previously on Oct 13,
2006 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed at A2 (sf); previously on Oct 13,
2006 Definitive Rating Assigned A2 (sf)
Cl. D-1, Affirmed at Baa2 (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Baa2 (sf)
Cl. D-2, Affirmed at Baa2 (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Baa2 (sf)
Cl. E-1, Affirmed at Baa3 (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Baa3 (sf)
Cl. E-2, Affirmed at Baa3 (sf); previously on
Oct 13, 2006 Definitive Rating Assigned Baa3 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on Oct 13,
2006 Definitive Rating Assigned Ba1 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Oct 13,
2006 Definitive Rating Assigned Ba2 (sf)
Cl. H, Affirmed at Ba3 (sf); previously on Oct 13,
2006 Definitive Rating Assigned Ba3 (sf)
Cl. J, Affirmed at B1 (sf); previously on Oct 13,
2006 Definitive Rating Assigned B1 (sf)
Cl. K, Affirmed at B2 (sf); previously on Oct 13,
2006 Definitive Rating Assigned B2 (sf)
Cl. L, Affirmed at B3 (sf); previously on Oct 13,
2006 Definitive Rating Assigned B3 (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.
Moody's rating action reflects a cumulative base expected loss of 1.6%
of the current balance. At last review, Moody's cumulative
base expected loss was 1.0%. Moody's stressed scenario
loss is 5% 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 sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011. The hotel and multifamily sectors are continuing
to show signs of recovery, while recovery in the office and retail
sectors will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodologies used in this rating were "CMBS: Moody's
Approach to Rating Fusion Transactions" published on April 2005,
"CMBS: Moody's Approach to Rating Canadian CMBS",
published on May 26, 2000, and "CMBS: Moody's
Approach to Rating Large Loan/Single Borrower Transactions" published
in July 2000.
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 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 17
compared to 19 at last review.
In cases where the Herf falls below 20, Moody's also employs
the large loan/single borrower methodology. This methodology uses
the excel-based Large Loan Model v 8.0 and then reconciles
and weights the results from the two models in formulating a rating recommendation.
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 March 4th, 2010. 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 14, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 13% to $360
million from $412 million at securitization. The Certificates
are collateralized by 56 mortgage loans ranging in size from less than
1% to 9% of the pool, with the top ten loans representing
60% of the pool. Three loans, representing 2%
of the pool, have defeased and are secured by Canadian Government
securities. The pool contains five loans with investment grade
credit estimates, representing 30% of the pool.
Thirteen loans, representing 13% 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 an aggregate realized loss of $30,000 (1%
loss severity). One loan, representing less then 1%
of the pool, is currently in special servicing, the same at
last review. Moody's has estimated an aggregate $170,000
loss (50% expected loss on average) for the specially serviced
loan.
Moody's has assumed a high default probability for three poorly performing
loans representing 4% of the pool and has estimated a $2
million aggregate 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 68%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 78% compared to 83% at Moody's
prior 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 9.0%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.41X and 1.32X, respectively,
compared to 1.35X and 1.22X 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.
There are five loans with credit estimates that make up 30% of
the pool. The largest loan with a credit estimate is the Crombie
Pool A Loan ($33.4 million -- 9.3%
of the pool), which is secured by five retail centers located throughout
the provinces of Nova Scotia, Newfoundland and New Brunswick.
The portfolio totals 579,000 square feet (SF) with County Fair Mall,
260,000 SF, as the largest property. As of December
2009, the portfolio was 84% leased, compared to 90%
at last review and 95% at securitization. The portfolio's
largest tenants are Sobey's (25% of the net rentable area (NRA);
lease expirations vary); Zellers (18% of the NRA; lease
expiration in March 2020) and Sears Canada (5% of the NRA;
lease expiration in October 2029). The decline in net operating
income from securitization has been partially offset by principal amortization.
The loan is structured with a 25-year amortization schedule and
has amortized 10% since securitization. The loan sponsor
is Crombie Development which is a subsidiary of the Empire Company and
owns Sobeys. Moody's current credit estimate and stressed DSCR
are Baa3 and 1.34X, respectively, compared to Baa3
and 1.29X at last review.
The second loan with a credit estimate is the Trinity Crossing Orleans
Loan ($29.7 million -- 8.3%
of the pool), which is secured by a 191,000 SF shopping center
located in the Ottawa suburb of Orleans, Ontario. The center
is shadow-anchored by Loblaws Supermarket, which is not part
of the collateral. As of February 2010, the property was
100% leased, essentially the same as last review and at securitization.
The largest tenant's are Winners (24% of the NRA; lease expiration
in May 2016); Value Village (15% of the NRA; lease expiration
in March 2019) and Michael's (11% of the NRA; lease expiration
in August 2016). The loan was previously on the watchlist due to
the bankruptcy of Linen 'N Things which occupied 15% of the NRA
at securitization. The space formerly occupied by Linen 'N Things
has been leased to Value Village at the same rental rate previously paid
by Linen 'N Things. Property's performance has been stable and
the loan benefits from principal amortization. The loan has amortized
7% since securitization. The loan is full recourse to RioCan
REIT, the sponsor. Moody's current credit estimate and stressed
DSCR are Baa3 and 1.07X, respectively, compared to
Baa3 and 0.99X at last review.
The third loan with a credit estimate is the Sandman Vancouver Hotel Loan
($22.5 million -- 6.3% of the
pool), which is secured by a 302-room full service hotel
located in downtown Vancouver, British Columbia. For the
12-month period ending December 2009, revenue per available
room (RevPAR) and occupancy were $56 and 53% respectively,
compared with $68 and 64% at last review, and $67
and 65% at securitization. Performance has declined due
to lower occupancy levels for 2009. The loan is structured on a
20-year amortization schedule and has amortized 15% since
securitization. The loan is full recourse to Northland Properties,
the sponsor. Moody's current credit estimate and stressed DSCR
are Baa3 and 1.50X, respectively, compared to Baa2
and 1.72X at last review.
The fourth loan with a credit estimate is the Merivale Market Shopping
Center Loan ($13.9 million -- 3.9%
of the pool), which is secured by a 79,000 SF grocery-anchored
shopping center located in the Ottawa suburb of Nepean, Ontario.
As of February 2010, the property was 100% leased,
similar at last review, compared to 95% at securitization.
The largest tenants are Food Basics (44% of the NRA; lease
expiration in May 2026) and Shopper's Drug Mart (22% of the NRA;
lease expiration in October 2016). Performance has been stable.
The loan has amortized 7% since securitization. The loan
is full recourse to RioCan REIT, the sponsor. Moody's current
credit estimate and stressed DSCR are Baa3 and .99X, respectively,
compared to Baa3 and 1.00X at last review.
The fifth loan with a credit estimate is the Abbey Plaza Loan ($8.3
million -- 2.3% of the pool), which
is secured by a 95,000 SF grocery-anchored shopping center
located in Oakville, Ontario. As of April 2010, the
property was 100% leased, essentially the same as at last
review and securitization. The largest tenant is Sobey's (47%
of the NRA; lease expiration in September 2015). Performance
has been stable. The loan is structured on a 20-year amortization
schedule and has amortized 14% since securitization. The
loan is full recourse to RioCan REIT, the sponsor. Moody's
current credit estimate and stressed DSCR are Aa1 and 1.94X,
respectively, compared to Aa1 and 1.78X at last review.
The three largest conduit loans represent 23% of the outstanding
pool balance. The largest conduit loan is the Distillery District
Loan ($30.6 million -- 8.5%
of the pool), which is secured by a 328,434 SF mixed-use
property that is an historic landmark located in downtown Toronto,
Ontario. As of December 2009, the property was 96%
leased compared to 98% at securitization. Performance has
been stable. The largest tenant is Toronto Artscape (15%
of the NRA; lease expiration in August 2022). The loan is
structured with a 25-year amortization schedule and has amortized
10% since securitization. The loan is full recourse to Dundee
REIT, the sponsor. Moody's current LTV and stressed DSCR
are 67% and 1.45X, respectively, compared to
74% and 1.32X at last review.
The second largest conduit loan is the Dominion Square Loan ($27.4
million -- 7.6% of the pool), which represents
a pari passu interest in a $54.8 million first mortgage
loan. The loan is secured by a 12-story, 374,402
SF mixed-use building located on St. Catherine Street in
downtown Montreal, Quebec. As March 2010, the property
was 96% leased compared to 72% at securitization.
The largest tenants are The Montreal Gazette (21% of the NRA;
lease expiration in December 2018); Travaux Publique du Canada (20%
of the NRA; lease expiration in March 2018) and Societe Immobiliere
du Quebec (9% of the NRA; lease expiration in January 2011).
Approximately 32% of the NRA is leased to local and provincial
government agencies. While the property's occupancy levels have
improved since securitization, rental revenue has decreased by 15%
due to lower rental rates for new and renewing tenants. Moody's
LTV and stressed DSCR are 109% and 0.89X, respectively,
compared to 91% and 1.07X at last review.
The third largest conduit loan is the Crombie Pool B Loan ($25
million -- 6.9% of the pool), which is secured
by a three anchored retail centres and one mixed-use property located
in Novia Scotia and New Brunswick. The portfolio totals 800,000
square feet, with properties ranging in size from 71,000 SF
to 386,000 SF with the largest property being Aberdeen Shopping
Centre. As December 2009, the property was 82% leased
compared to 90% at securitization. The sponsor is Crombie
Developments, which is a subsidiary of the Empire Company,
owner's of Sobey. Loan maturities range from April 2014 to April
2018. Performance has declined due to drop in revenues and increased
operating expenses. Moody's LTV and stressed DSCR are 89%
and 1.17X, respectively, compared to 80% and
1.28X at securitization.
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 18 CMBS Classes of REALT 2006-2
