Approximately $63.2 Million of Structured Securities Affected
New York, March 09, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of four classes
of Merrill Lynch Mortgage Investors, Inc., Mortgage
Pass-Through Certificates, Series 1998-C3 as follows:
CL. C, Affirmed at Aaa (sf); previously on Jul 20,
2006 Upgraded to Aaa (sf)
CL. D, Affirmed at Aaa (sf); previously on Apr 15,
2010 Upgraded to Aaa (sf)
CL. E, Affirmed at Aa2 (sf); previously on Apr 15,
2010 Upgraded to Aa2 (sf)
CL. IO, Affirmed at Aaa (sf); previously on May 16,
2001 Confirmed at Aaa (sf)
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio and stressed debt service coverage ratio (DSCR)
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. The significant decline
in loan diversity, as measured by the Herfindahl Index (Herf),
has been mitigated by increased subordination.
Moody's rating action reflects a cumulative base expected loss of
6.3% of the current balance. At last review,
Moody's cumulative base loss was 12.4%. Moody's
stressed scenario loss is 11.2% 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://www.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 Conduit Transactions" published in September 2000 and
Moody's Approach to Rating Large Loan/Single Tenant 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 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 4 compared
to 5 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 April 15, 2010. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
As of the February 16, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 82% to $114.9
million from $638.4 million at securitization. The
Certificates are collateralized by 24 mortgage loans ranging in size from
less than 1% to 42% of the pool, with the top ten
loans representing 74% of the pool. Five loans, representing
14% of the pool, have defeased and are collateralized by
U.S. Government securities.
Three loans, representing 2.9% 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
Eight loans have been liquidated from the pool since securitization,
resulting in a $29.5 million loss (56% loss severity).
The pool had experienced an aggregate $19.5 million loss
at last review. There is presently one loan in special servicing.
The specially serviced loan is the Holcomb Woods Shopping Center Loan
($6.1 million -- 5.3% of the pool),
which is secured by a 101,868 square foot (SF) retail center located
in Roswell, Georgia. The loan was transferred to special
servicing July 2009 due to imminent default and is presently 90+
days delinquent. The Special Servicer determined that advances
were unrecoverable in January 2011 after realizing an appraisal reduction
of $4.9 million in December 2010. Moody's estimates
a $4.8 million aggregate loss for this specially serviced
loan (79% expected loss).
Moody's has assumed a high default probability for two poorly performing
loans representing 1.9% of the pool and has estimated a
$330,687 loss (15% 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 72% and 60%, respectively, of the
pool's non-defeased loans. Excluding specially serviced
and troubled loans, Moody's weighted average LTV is 49%
compared to 65% at Moody's prior review. Moody's
net cash flow reflects a weighted average haircut of 29% to the
most recently available net operating income. Moody's value
reflects a weighted average capitalization rate of 9.45%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.93X and 2.28X, respectively,
compared to 1.42X and 1.65X 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 52% of the pool
balance. The largest loan is the 1700 Broadway Loan ($48.3
million -- 42.0% of the pool), which is secured
by a 584,000 SF office building located in New York City.
The property is 100% leased, the same as at last review.
The property is subject to a 99-year ground lease which expires
March 2011 with renewal options through March 2064. The ground
lease rent payment will reset to 6% of the land value, which
will result in a significant increase in the ground rent payment.
Although the property's performance has improved since last review,
Moody's stressed the cash flow to reflect the upcoming increase
in ground rent payments. The loan has benefited from 3%
amortization since last review. Moody's LTV and stressed
DSCR are 40% and 2.42X, respectively, compared
to 68% and 1.44X at last review.
The second largest conduit loan is the BJ's Wholesale Club Loan
($6.0 million -- 5.2% of the pool),
which is secured by a 105,000 SF retail property located in Philadelphia,
Pennsylvania. The property is 100% leased to BJ's
Wholesale Club Inc. through May 2013. Financial performance
has been stable and the loan has amortized 2% since last review.
Moody's LTV and stressed DSCR are 81% and 1.29X,
respectively, compared to 83% and 1.26X at last review.
The third largest conduit loan is the Republic Beverage Building Loan
($5.8 million -- 5.1% of the pool),
which is secured by a 385,000 SF industrial property located in
Grand Prairie, Texas. The property is 100% leased
to Republic Beverage Co. through August 2018. Performance
has been stable. The loan fully amortizes over its 20-year
loan term and has amortized 8% since last review. Moody's
LTV and stressed DSCR are 46% and 2.25X, respectively,
compared to 50% and 2.07X at last review.
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
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Affirms Four CMBS Classes of MLMI 1998-C3
250 Greenwich Street
New York, NY 10007