Approximately $1.35 Billion of Structured Securities Affected
New York, April 23, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 20 classes
of Merrill Lynch Mortgage Trust, Commercial Mortgage Pass-Through
Certificates, Series 2005-LC1 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jan 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jan 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-3FL, Affirmed at Aaa (sf); previously on
Jan 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-4FC, Affirmed at Aaa (sf); previously on
Jan 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-1A, Affirmed at Aaa (sf); previously on
Jan 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Jan 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-SB, Affirmed at Aaa (sf); previously on
Jan 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. X, Affirmed at Aaa (sf); previously on Jan 12,
2006 Assigned Aaa (sf)
Cl. AM, Affirmed at Aaa (sf); previously on Jan 12,
2006 Definitive Rating Assigned Aaa (sf)
Cl. AJ, Affirmed at Aa2 (sf); previously on May 5,
2010 Downgraded to Aa2 (sf)
Cl. B, Affirmed at A1 (sf); previously on May 5,
2010 Downgraded to A1 (sf)
Cl. C, Affirmed at A2 (sf); previously on May 5,
2010 Downgraded to A2 (sf)
Cl. D, Affirmed at Baa1 (sf); previously on May 5,
2010 Downgraded to Baa1 (sf)
Cl. E, Affirmed at Baa2 (sf); previously on May 5,
2010 Downgraded to Baa2 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on May 5,
2010 Downgraded to Ba1 (sf)
Cl. G, Affirmed at Ba3 (sf); previously on May 5,
2010 Downgraded to Ba3 (sf)
Cl. H, Affirmed at Caa1 (sf); previously on May 5,
2010 Downgraded to Caa1 (sf)
Cl. J, Affirmed at Caa2 (sf); previously on May 5,
2010 Downgraded to Caa2 (sf)
Cl. K, Affirmed at Caa3 (sf); previously on May 5,
2010 Downgraded to Caa3 (sf)
Cl. L, Affirmed at Ca (sf); previously on May 5,
2010 Downgraded to Ca (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
4.6% of the current balance, which is the same as
at last review. Moody's stressed scenario loss is 15.6%
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 methodology used in this rating was " Moody's Approach to
Rating Fusion U.S. CMBS Transactions", published
April 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 40
compared to 43 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 May 5, 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 April 12, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 11% to $1.38
billion from $1.55 billion at securitization. The
Certificates are collateralized by 133 mortgage loans ranging in size
from less than 1% to 9% of the pool, with the top
ten loans representing 40% of the pool. The pool contains
one loan, representing 8.3% of the pool, with
a credit estimate.
Thirty-three loans, representing 20% 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.
Five loans have been liquidated from the pool, resulting in a $7
million loss (51% average loss severity). Nine loans,
representing 8% of the pool, are currently in special servicing.
The largest specially serviced loan is the Four Forest/Lakeside Loan ($58
million -- 4% of the pool). The loan is secured by
two office properties located in Dallas, Texas. The collateral
was 81% leased as of August 2010. The loan's maturity
date was extended from November 2010 to June 3, 2011. The
collateral was reappraised for $73.1 million on February
10, 2011. Moody's does not estimate a loss for this
loan.
The remaining eight specially serviced loans are secured by a mix of retail,
office and industrial properties. Moody's has estimated a
$24 million loss (44% expected loss based on an 93%
probability of default) for the eight remaining specially serviced loans.
The servicer has recognized a $23 million aggregate appraisal reduction
for seven of the remaining eight specially serviced loans.
Moody's has assumed a high default probability for six poorly performing
loans representing 3% of the pool and has estimated an aggregate
$6 million loss (15% expected loss based on a 50%
probability default) from these troubled loans.
Based on the most recent remittance statement, Classes L through
Q have experienced cumulative interest shortfalls totaling $2.9
million. Moody's anticipates that the pool will continue to experience
interest shortfalls due to the increased exposure to specially serviced
loans since last review. Interest shortfalls are caused by special
servicing fees, including workout and liquidation fees, appraisal
subordinate entitlement reductions (ASERs) and extraordinary trust expenses.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 92% and 91% of the pool's loans,
respectively. Excluding specially serviced loans, troubled
loans and loans with credit estimates, Moody's weighted average
LTV is 101%, which is the same as at 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 9.1%.
Excluding specially serviced loans, troubled loans and loans with
credit estimates, Moody's actual and stressed DSCRs are 1.32X
and 1.02X, respectively, compared to 1.41X and
1.03X at last review. Part of the decline in actual DSCR
can be attributed to loan repayment converting from interest only to principal
and interest repayment. Currently 97.5% of the pool's
loans are amortizing. 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 Glendale Galleria Loan ($115
million - 8.3% of the pool). The collateral
consists of the borrower's interest in a 1.3 million square
foot (SF) enclosed regional shopping mall located in Glendale, California.
More specifically, the collateral includes 661,000 SF of retail,
office and storage space. The loan represents a 45% pari-passu
interest in a $255 million amortizing loan. There is also
an $82.2 million B Note and $27.8 million
of mezzanine debt held outside the trust. As of December 2010,
the property was 98% leased with in-line mall tenant occupancy
@ 86%, similar to last review. Financial performance
has declined slightly since last review due to lower revenue achievement
and higher operating expenses. The loan sponsors include GGP and
NYSTRES. Moody's credit estimate, loan to value (LTV)
and stressed DSCR are Baa2, 67% and 1.26X, respectively
compared to Baa1, 65% and 1.26X at last review.
The top three conduit loans represent 16% of the pool. The
largest conduit loan is the Colonial Mall Bel Air Loan ($118 million
-- 8.6% of the pool), which is secured by the
borrower's interest in a 1.3 million SF regional mall located in
Mobile, Alabama. The property has maintained a high and stable
occupancy as the entire mall is 97% leased, which is the
same as at last review. Inline sales have experienced a 3.7%
year over year increase through July 2010. Moody's current LTV
and stressed DSCR are 103% and 0.95x, respectively,
compared to 106% and 0.92x at last review.
The second largest conduit loan is the MOB Portfolio Loan ($57
million -- 4.2% of the pool), which is secured
by seven medical office buildings and one surgical center. Six
of the properties are located in Dallas, Texas and two are located
in Oklahoma City, Oklahoma. The portfolio totals 338,000
SF and was 76% leased as of September 2010 compared to 79%
at 2009 year end. Moody's LTV and stressed DSCR are 119%
and 0.90x, respectively, compared to 111% and
.94x at last review.
The third largest conduit loan is the Colonial Mall Greenville ($43
million -- 3.1% of the pool), which is secured
by the borrower's interest in a 450,000 SF Class B regional
mall located in Greenville, North Carolina. Total mall occupancy
is 83% compared to 96% at securitization. The decline
in occupancy is mainly attributed to Steve & Barry's vacating
its 54,000 SF space during its 2008 bankruptcy. The space
remains vacant. Moody's LTV and stressed DSCR are 138%
and .73X, respectively, compared to 125% and
0.80X 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 20 CMBS Classes of MLMT 2005-LC1
