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Announcement:

Moody's Affirms Nine CMBS Classes of MLFT 2006-1

17 Nov 2010

Approximately $1.0 billion of Structured Securities Affected

New York, November 17, 2010 -- Moody's Investors Service (Moody's) affirmed the ratings of nine classes of Merrill Lynch Floating Trust Commercial Pass-Through Certificates, Series 2006-1 as follows:

Cl. A-1, Affirmed at Aaa (sf); previously on Dec 1, 2006 Definitive Rating Assigned Aaa (sf)

Cl. A-2, Affirmed at Aaa (sf); previously on Dec 1, 2006 Definitive Rating Assigned Aaa (sf)

Cl. X-1B, Affirmed at Aaa (sf); previously on Dec 1, 2006 Definitive Rating Assigned Aaa (sf)

Cl. X-3A, Affirmed at Aaa (sf); previously on Dec 1, 2006 Definitive Rating Assigned Aaa (sf)

Cl. X-3B, Affirmed at Aaa (sf); previously on Dec 1, 2006 Assigned Aaa (sf)

Cl. X-3C, Affirmed at Aaa (sf); previously on Dec 1, 2006 Assigned Aaa (sf)

Cl. B, Affirmed at Aa1 (sf); previously on Mar 5, 2009 Downgraded to Aa1 (sf)

Cl. C, Affirmed at Aa3 (sf); previously on Mar 5, 2009 Downgraded to Aa3 (sf)

Cl. D, Affirmed at A1 (sf); previously on Mar 5, 2009 Downgraded to A1 (sf)

The affirmations are based on the expectation of continuing stable performance of the majority of the loans securing the certificates, Moody's expected loss projections for the pool and the increase in credit enhancement for Moody's rated certificate classes. The principal methodology used in this rating was Moody's "CMBS: Moody's Approach to Rating Large Loan/Single Borrower Transactions" published in July 2000. In addition, 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 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 2010 and 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.

Moody's review incorporated the use of the excel-based CMBS Large Loan Model v 8.0 which is used for both large loan and single borrower transactions. 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. The model also incorporates a supplementary tool to allow for the testing of the credit support at various rating levels. The scenario or "blow-up" analysis tests the credit support for a rating assuming that loans in the pool default with an average loss severity that is commensurate with the rating level being tested. 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.

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 5, 2009. 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 November 15, 2010 Payment Date, the transaction's certificate balance has decreased by 48% to $1.4 billion from $2.6 billion at securitization due to the payoff of seven loans originally in the pool and partial pay downs of two loans, the Lord & Taylor Portfolio Loan and the Trizec Portfolio Mortgage Loan. Currently the mortgage pool consists of eight loans secured by retail properties (46% of the trust balance), office (40%), and hotels (14%).

Currently, two loans are in special servicing. The Crowne Plaza Hotel San Antonio Loan (1.8%) was transferred to special servicing in May 2010 for maturity default and is a performing matured loan. Discussions are in progress between the special servicer and the borrower to resolve the maturity default. The Royal Holiday Portfolio Loan (3.5%), which is the third largest loan in the pool, was transferred to special serving in February 2010 and is a non-performing matured loan. The loan is secured by six hotels located in Mexico with a total of 1,501 rooms. Two of the hotels are located in Cancun, and the other four hotels are located in Cozumel, Ixtapa, Acapulco and San Jose del Cabo. The Royal Holiday Portfolio Loan borrower filed for Mexican bankruptcy protection in May 2010 for one of the six Mexican hotels that secure the loan without notifying the lender. Additionally, the borrower had amended a master lease with an affiliate that has reduced cash flow by approximately $6 million. To date the trust has not had any losses.

Moody's was provided with full-year 2009 and year-to-date 2010 operating statements for the properties that serve as collateral for the loans in the pool. Moody's weighted average loan to value (LTV) ratio is 78% compared to 81% at last review. Moody's stressed debt service coverage ratio (DSCR) is 1.35X compared to 1.37X at last review. Moody's stressed DSCR is based on Moody's net cash flow (NCF) and a 9.25% stressed rate applied to the loan balance.

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. Large loan transactions have a Herf of less than 20. This pool has a Herf of 3, the same as at Moody's prior review.

The largest loan in the pool is the Lord & Taylor Portfolio Loan ($630.3 million -- 46% of the pool balance) which provided financing for the acquisition of the Lord & Taylor department store chain from Federated Department Stores. The portfolio consists of 37 cross-collateralized and cross-defaulted properties containing a total of 6.0 million square feet. Twenty-two of the properties are owned in fee and 15 are leasehold interests. The properties, which 100% leased to Lord & Taylor, are located in eight different states and Washington, D.C. Included in the portfolio is the Lord & Taylor's New York City flagship store located on Fifth Avenue at 38th Street in an 11-story building containing 676,042 square feet.

In December 2008 the Lord & Taylor borrower advised the mortgage lender that sales had dropped due to the economic recession and a loan modification was negotiated in the 1st quarter of 2009. Significant terms of the loan modification included the release of reserve funds to prepay a portion of the mortgage loan and $15 million of the mezzanine debt, a $60 million cash infusion from Hudson's Bay Trading Company, LP (the parent company), suspension of mezzanine debt amortization through 1/31/2011 and suspension of deposits into the cash flow reserve account until January 2011, after which it will be reinstated if Earnings Before Interest, Taxes, Depreciation, Amortization and Rent (EBITDAR) exceeds the threshold.

Lord & Taylor operations are stabilizing. Year-to-date sales for the 36 locations that collateralize the loan have risen 11% year-to-date through September 2010 over the same period in 2009. The outstanding principal balance of the mortgage loan has decreased 19% since securitization as a result of the loan restructuring and scheduled amortization payments of $71,483 per month. In addition, there is mezzanine debt in the amount of $210 million. The loan matures in June 2012. The loan sponsor is NRDC Equity Partners which is a partnership between principals of Apollo Real Estate Advisors and National Realty and Development Corp. Moody's LTV is 91%. Moody's has concerns regarding the future performance of retailers in general, in view of current global economic conditions, and will continue to monitor the performance of the Lord & Taylor Portfolio Loan given its significant share of this transaction.

The second largest loan is the Trizec Portfolio Mortgage Loan ($505.8 million -- 37%), which is a pari passu participation in a $595.0 million whole loan. The cross-collateralized and cross-defaulted loans are secured by 22 separate office properties with a total net rentable area of 7.9 million square feet. The properties are located in five different metropolitan areas: Los Angeles, California (10 properties -- 3.2 million square feet); San Diego, California (3 properties -1.4 million square feet); Jersey City, New Jersey (1 property -- 1.1 million square feet); Washington, D.C. (6 properties -- 1.4 million square feet); and Houston, Texas (2 properties -- 0.8 million square feet). As of June 2010 the portfolio was 86% leased compared to 85% at securitization.

The interest-only Trizec Portfolio Mortgage Loan had an initial maturity date in October 2008. There are three 12-month extension options. There is additional trust mezzanine debt in the amount of $470.4 million. The loan sponsors are Brookfield Properties Corporation and Blackstone Real Estate Partners. Moody's LTV is 53%.

New York
Jay Rosen
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael M. Gerdes
Senior Vice President
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.

Moody's Affirms Nine CMBS Classes of MLFT 2006-1
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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