Approximately $350.8 Million of Structured Securities Affected
New York, February 24, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 19 classes
of Real Estate Asset Liquidity Trust Commercial Mortgage Pass-Through
Certificates, Series 2007-2 as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-J, Affirmed at Aaa (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XP-1, Affirmed at Aaa (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XC-1, Affirmed at Aaa (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XP-2, Affirmed at Aaa (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XC-2, Affirmed at Aaa (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aa2 (sf); previously on Jun 27,
2007 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed at A2 (sf); previously on Jun 27,
2007 Definitive Rating Assigned A2 (sf)
Cl. D-1, Affirmed at Baa2 (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Baa2 (sf)
Cl. D-2, Affirmed at Baa2 (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Baa2 (sf)
Cl. E-1, Affirmed at Baa3 (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Baa3 (sf)
Cl. E-2, Affirmed at Baa3 (sf); previously on
Jun 27, 2007 Definitive Rating Assigned Baa3 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on Jun 27,
2007 Definitive Rating Assigned Ba1 (sf)
Cl. G, Affirmed at Ba3 (sf); previously on Feb 3,
2010 Downgraded to Ba3 (sf)
Cl. H, Affirmed at B2 (sf); previously on Feb 3,
2010 Downgraded to B2 (sf)
Cl. J, Affirmed at B3 (sf); previously on Feb 3,
2010 Downgraded to B3 (sf)
Cl. K, Affirmed at Caa1 (sf); previously on Feb 3,
2010 Downgraded to Caa1 (sf)
Cl. L, Affirmed at Caa2 (sf); previously on Feb 3,
2010 Downgraded to Caa2 (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
1.9% of the current balance. At last review,
Moody's cumulative base expected loss was 1.7%.
Moody's stressed scenario loss is 8.3% 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: "Moody's
Approach to Rating Canadian CMBS " published on May 26, 2000 and
"Moody's Approach to Rating Fusion Transactions" published in April 19,
2005.
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 22
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 February 3, 2010.
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 February 14, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 6% to $355.4
million from $377.3 million at securitization. The
Certificates are collateralized by 45 mortgage loans ranging in size from
less than 1% to 11% of the pool, with the top ten
loans representing 58% of the pool. The pool includes one
loan with an investment-grade credit estimate, representing
11% of the pool. The pool does not contain any defeased
loans.
Two loans, representing 2% 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 losses since securitization. There
is currently one loan in special servicing. The 3007 56th Avenue
Loan ($2.6 million; 0.7% of the pool)
was transferred to special servicing in October 2009 due to monetary default.
A tenant that occupied 80% of the net rentable area (NRA) vacated
the property in 2008 and the borrower has been unable to lease the space.
The special servicer has hired a broker to list the property for sale.
Moody's has estimated a $1.3 million loss (49%
expected loss) for the specially serviced loan. Moody's has
not currently estimated losses for any other loans in the pool.
Moody's was provided with full year 2009 operating results for 92%
of the pool. Excluding the specially serviced loan, Moody's
weighted average LTV is 94% compared to 99% at Moody's
last 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
9.2%.
Excluding the specially serviced loan, Moody's actual and
stressed DSCRs are 1.35X and 1.11X, respectively,
compared to 1.30X and 1.05X 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 loan with a credit estimate is the Atrium Pooled Interest A-Note
($38.7 million -- 8.1%),
which is secured by a 1.1 million square foot (SF) office/retail
complex located in the central business district of Toronto, Ontario.
The loan represents a 33% pari passu interest in a $116
million first mortgage. A $74 million B note held outside
the trust also encumbers the property. The property was 98%
leased as of September 2009. The largest tenant is the Canadian
Imperial Bank of Commerce (CIBC) which leases 35% of the NRA.
The loan is sponsored by Hines Real Estate Investments. Property
performance has improved since last review. Moody's current credit
estimate and stressed DSCR are A2 and 1.62X, respectively,
compared to A3 and 1.44X at last review.
The top three performing conduit loans represent 18% of the pool
balance. The largest loan is the Sundance Pooled Interest Loan
($25.9 million -- 7.3% of the pool),
which is secured by a 179,619 SF four story office building located
in Calgary, Alberta. The loan represents a 50% interest
in a $151.9 million first mortgage loan. Major tenants
include Colt Engineering Company (73% of the NRA) and Fluor Canada,
Inc (23% of the NRA). The property is 100% leased
but tenant leases accounting for 47% of the NRA, including
a third of the space occupied by Colt Engineering Company, expire
within the next twelve months. Performance has improved since last
review due to increased rental revenue. Moody's analysis
incorporates a stressed cash flow due to concerns about potential income
volatility due to upcoming expiring leases. Moody's LTV and stressed
DSCR are 100% and 0.97X, respectively, compared
to 111% and 0.86X at last review.
The second largest loan is the 55 St. Clair Pooled Interest Loan
($19.4 million -- 5.5% of the pool),
which is secured by two office buildings totaling 251,554 SF located
in Toronto, Ontario. The loan represents a 50% pari
passu interest in a $38.9 million first mortgage.
Performance of the property has improved significantly since last review.
The property's net operating income increased by 26% in 2009
compared to the prior year. As of April 2010, the property
was 98% leased. Moody's LTV and stressed DSCR are 87%
and 1.11X, respectively, compared to 115% and
0.85X at last review.
The third largest loan is the Place Louis Riel Loan ($19.4
million -- 5.4% of the pool), which is secured
by a 302 room full service extended stay hotel located in downtown Winnipeg,
Manitoba. More than $11 million has been spent on renovations
to the property since 2007. Moody's LTV and stressed DSCR are 96%
and 1.19, respectively, compared to 114% and
0.99X 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
Andrew Florio
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 19 CMBS Classes of REALT 2007-2
