Approximately $150.7 Million of Structured Securities Affected
New York, February 09, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of eight classes
and downgraded the ratings of five classes of Merrill Lynch Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 2005-MKB2
Cl. B, Affirmed at Aa3 (sf); previously on Feb 17,
2010 Downgraded to Aa3 (sf)
Cl. C, Affirmed at A1 (sf); previously on Feb 17,
2010 Downgraded to A1 (sf)
Cl. D, Affirmed at Baa1 (sf); previously on Feb 17,
2010 Downgraded to Baa1 (sf)
Cl. E, Affirmed at Baa2 (sf); previously on Feb 17,
2010 Downgraded to Baa2 (sf)
Cl. F, Downgraded to Ba3 (sf); previously on Feb 17,
2010 Downgraded to Ba1 (sf)
Cl. G, Downgraded to B3 (sf); previously on Feb 17,
2010 Downgraded to Ba3 (sf)
Cl. H, Downgraded to Caa3 (sf); previously on Feb 17,
2010 Downgraded to B3 (sf)
Cl. J, Downgraded to C (sf); previously on Feb 17,
2010 Downgraded to Caa3 (sf)
Cl. K, Downgraded to C (sf); previously on Feb 17,
2010 Downgraded to Ca (sf)
Cl. L, Affirmed at C (sf); previously on Feb 17,
2010 Downgraded to C (sf)
Cl. M, Affirmed at C (sf); previously on Feb 17,
2010 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Feb 17,
2010 Downgraded to C (sf)
Cl. P, Affirmed at C (sf); previously on Feb 17,
2010 Downgraded to C (sf)
The downgrades to classes F through K are due to higher expected losses
for the pool resulting from interest shortfalls and realized and anticipated
losses from specially serviced and troubled loans. 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 did not address the ratings of Classes A-2,
A-3, A-SB, A-4, A-1A,
A-J, XC and XP, which are all currently rated Aaa,
on review for possible downgrade. These classes were placed on
review on January 19, 2011. KeyCorp Real Estate Capital Markets,
Inc. (KRECM) is the master servicer on this transaction and deposits
collection, escrow and other accounts in KeyBank, National
Association (Keybank). Keybank no longer meets Moody's rating
criteria for an eligible depository account institution for Aaa and Aa1
rated securities. Moody's is reviewing arrangements that KeyBank
has proposed, and that it may propose, to mitigate the incremental
risk indicated by the lower rating of the depository account institution,
so as possibly to allow the classes on review to maintain their current
Moody's rating action reflects a cumulative base expected loss of
7.1% of the current balance. At last review,
Moody's cumulative base loss was 6.0%. Moody's
stressed scenario loss is 10.6% 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 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 "CMBS: Moody's
Approach to Rating Conduit Transactions" published in September 2000.
In addition to methodologies and research, 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 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 23
compared to 28 at last 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 17, 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 received and took into account one or
more third party due diligence reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the ratings.
As of the January 12, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 23% to $876
million from $1.1 billion at securitization. The
Certificates are collateralized by 73 mortgage loans ranging in size from
less than 1% to 7% of the pool, with the top ten loans
representing 42% of the pool. Six loans, representing
21% of the pool, have defeased and are collateralized by
U.S. Government securities. There are no loans in
the pool with an investment grade credit estimate.
Fourteen loans, representing 10% 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
Two loans have been liquidated from the pool since securitization,
resulting in an aggregate $7.3 million loss (60%
loss severity overall). The pool had experienced no losses at last
review. Seven loans, or 21% of the pool, are
currently in special servicing. The largest specially serviced
loan is the DeSoto Square Mall Loan ($63.0 million --
7.2% of the pool) which is secured by a 493,000 square
foot enclosed regional shopping mall located in Bradenton, Florida.
The loan was recently transferred to special servicing due to imminent
default. The mall's owner, Simon Property Group (SPG),
has offered to turn the property over to the lender. The second
largest specially serviced loan is the Lodgian Portfolio 3 Loan ($44.1
million -- 5.0% of the pool) which is secured by four
limited service and two full service hotels located in five states (TX,
NH, MD, KY and AK) with a total 1,039 rooms.
The portfolio flags include Holiday Inn, Courtyard by Marriott,
Marriott Fairfield Inn and Crowne Plaza. The loan was transferred
to special servicing in July 2009 due to a maturity default and has operated
under a receiver since February 2010. Performance has improved
and four hotels are presently being marketed for sale.
The remaining 12 specially serviced loans are secured by a mix of property
types. The master servicer has recognized an aggregate $14.9
million appraisal reduction from four specially serviced loans.
Moody's has estimated an aggregate $47.2 million loss
(26% expected loss on average) for all of the specially serviced
Moody's has assumed a high default probability for seven of the
fourteen watchlisted loans representing 6% of the pool and has
estimated a $10.2 million loss (20% expected loss
based on a 50% probability default) from these troubled loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 96% and 75%, respectively, of the
pool's non-defeased loans. Excluding specially serviced
and troubled loans, Moody's weighted average LTV is 86%
compared to 93% at Moody's prior review. Moody's
net cash flow reflects a weighted average haircut of 11.3%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.06%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.52X and 1.18X, respectively,
compared to 1.48X and 1.13X 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 16% of the pool
balance. The largest conduit loan is the Emerald Point Apartments
Loan ($49.1 million -- 5.6% of the pool)
which is secured by an 863-unit Class B garden style apartment
complex located in Virginia Beach, Virginia. As of June 2010,
the property was 95% leased versus 96% at last review.
Financial performance has improved since last review. Moody's
LTV and stressed DSCR are 76% and 1.25X, respectively,
compared to 92% and 1.02X at last review.
The second largest loan is the Sun Communities -- Indian Creek Loan
($48.5 million -- 5.5% of the pool),
which is secured by a 1,532 unit manufactured housing community
located in Fort Myers Beach, Florida. Financial performance
has has improved since last review due to higher revenues while occupancy
remains at 92%, the same as last review. The loan
has amortized 2% since last review. Moody's LTV and
stressed DSCR are 73% and 1.22X, respectively,
compared to 86% and 1.07X at last review.
The third largest loan is the 400 Industrial Avenue Loan ($44.2
million -- 5.0% of the pool), which is secured
by a 986,565 SF industrial building located in Cheshire, Connecticut.
The property is 100% leased to Bozzuto through January 2030.
Financial performance at this property has remained consistent due to
the long-term lease to Bozzuto. This loan has amortized
2% since last review. Moody's LTV and stressed DSCR
are 78% and 1.24X, respectively, compared to
84% and 1.16X at last review.
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
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Affirms Eight and Downgrades Five CMBS Classes of MLMT 2005-MKB2
250 Greenwich Street
New York, NY 10007