Approximately $345 million of structured securities affected
New York, November 06, 2014 -- Moody's Investors Service has affirmed the ratings on ten classes and
upgraded three classes in Merrill Lynch Financial Assets, Inc.,
Series 2006-Canada 18 as follows:
Cl. A-2, Affirmed Aaa (sf); previously on Dec
12, 2013 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Dec
12, 2013 Affirmed Aaa (sf)
Cl. B, Affirmed Aaa (sf); previously on Dec 12,
2013 Upgraded to Aaa (sf)
Cl. C, Upgraded to Aa3 (sf); previously on Dec 12,
2013 Affirmed A1 (sf)
Cl. D, Upgraded to Baa1 (sf); previously on Dec 12,
2013 Affirmed Baa2 (sf)
Cl. E, Upgraded to Baa2 (sf); previously on Dec 12,
2013 Affirmed Baa3 (sf)
Cl. F, Affirmed Ba1 (sf); previously on Dec 12,
2013 Affirmed Ba1 (sf)
Cl. G, Affirmed Ba2 (sf); previously on Dec 12,
2013 Affirmed Ba2 (sf)
Cl. H, Affirmed Ba3 (sf); previously on Dec 12,
2013 Affirmed Ba3 (sf)
Cl. J, Affirmed B1 (sf); previously on Dec 12,
2013 Affirmed B1 (sf)
Cl. K, Affirmed B2 (sf); previously on Dec 12,
2013 Affirmed B2 (sf)
Cl. L, Affirmed B3 (sf); previously on Dec 12,
2013 Affirmed B3 (sf)
Cl. XC, Affirmed Ba3 (sf); previously on Dec 12,
2013 Affirmed Ba3 (sf)
RATINGS RATIONALE
The ratings on nine P&I classes (A-2, A-3,
B, F, G, H, J, K, L) were affirmed
because the transaction's key metrics, including Moody's loan-to-value
(LTV) ratio, Moody's stressed debt service coverage ratio (DSCR)
and the transaction's Herfindahl Index (Herf), are within
acceptable ranges.
The ratings on three P&I classes (C, D, E) we upgraded
based primarily on an increase in credit support resulting from loan paydowns
and amortization. The deal has paid down 6% since Moody's
last review.
The rating on the IO class was affirmed based on the credit quality or
WARF of the referenced classes.
Moody's rating action reflects a base expected loss of 2.1%
of the current balance compared to 2.3% at Moody's
last review. Moody's base expected loss plus realized losses is
now 1.2% of the original pooled balance, compared
to 1.4% at the last review. Moody's provides
a current list of base expected losses for conduit and fusion CMBS transactions
on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range can indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant
amount of loan paydowns or amortization, an increase in the pool's
share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline
in the performance of the pool, loan concentration, an increase
in realized and expected losses from specially serviced and troubled loans
or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in this rating was "Moody's Approach to
Rating U.S. CMBS Conduit Transactions" published in
September 2000. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
On October 9, 2014, Moody's issued a "Request for Comment"
asking for market feedback on proposed changes to the methodology it uses
to rate conduit and fusion CMBS transactions. If Moody's adopts
the new methodology as proposed, the changes could affect the ratings
of MLFA 2006-CAN18. Please see "Request for Comment:
Proposed Enhancements to Our Approach to Rating US and Canadian Conduit/Fusion
CMBS", which is available at www.moodys.com,
for more information about the implications of the proposed changes to
the methodology on Moody's ratings.
DESCRIPTION OF MODELS USED
Moody's review used the excel-based CMBS Conduit Model v
2.64, which it uses for both conduit and fusion transactions.
Conduit model results at the Aa2 (sf) level are driven by property type,
Moody's actual and stressed DSCR, and Moody's property
quality grade (which reflects the capitalization rate Moody's uses
to estimate Moody's value). Conduit model results at the
B2 (sf) level are based on a paydown analysis using the individual loan-level
Moody's LTV ratio. Moody's may consider other concentrations
and correlations in its analysis. Based on the model pooled credit
enhancement levels of Aa2 (sf) and B2 (sf), the required credit
enhancement on 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, Moody's
merges the credit enhancement for loans with investment-grade credit
assessments with the conduit model credit enhancement for an overall model
result. Moody's incorporates negative pooling (adding credit
enhancement at the credit assessment level) for loans with similar credit
assessments in the same transaction.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity.
Loan concentration has an important bearing on potential rating volatility,
including the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 20,
the same as at Moody's last review.
DEAL PERFORMANCE
As of the October 14, 2014 distribution date, the transaction's
aggregate certificate balance has decreased by 42% to $345
million from $590 million at securitization. The certificates
are collateralized by 57 mortgage loans ranging in size from less than
1% to 13% of the pool, with the top ten loans constituting
57% of the pool. No loans have investment-grade structured
credit assessments. One loan, constituting 2% of the
pool, has defeased and is secured by Canadian government securities.
Thirteen loans, constituting 25% of the pool, are on
the master servicer's watchlist. The watchlist includes loans
that meet certain portfolio review guidelines established as part of the
CRE Finance Council (CREFC) monthly reporting package. As part
of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues that
could affect performance.
No loans have been liquidated from the pool and currently no loans are
in special servicing. Moody's has assumed a high default
probability for two poorly performing loans, constituting 2%
of the pool, and has estimated an aggregate loss of $1.5
million (a 19% expected loss based on a 50% probability
default) from these troubled loans.
Moody's received full or partial year 2013 operating results for 88%
of the pool. Moody's weighted average conduit LTV is 73%
compared to 76% at Moody's last review. Moody's
conduit component excludes loans with structured credit assessments,
defeased and CTL loans, and specially serviced and troubled loans.
Moody's net cash flow (NCF) reflects a weighted average haircut
of 10.6% to the most recently available net operating income
(NOI). Moody's value reflects a weighted average capitalization
rate of 9.1%.
Moody's actual and stressed conduit DSCRs are 1.53X and 1.43X,
respectively, compared to 1.55X and 1.38X at the last
review. Moody's actual DSCR is based on Moody's NCF
and the loan's actual debt service. Moody's stressed
DSCR is based on Moody's NCF and a 9.25% stress rate
the agency applied to the loan balance.
The top three conduit loans represent 30% of the pool balance.
The largest loan is the TransGlobe Pooled Senior Loan ($44.7
million -- 12.9% of the pool), which represents
a 45% pari-passu interest in a $99.2 million
A-note. There is also $10.6 million B-note
held outside the trust. The loan is secured by 25 multi-family
properties totaling 2,491 units located in Ontario and Nova Scotia.
Moody's LTV and stressed DSCR are 81% and 1.14X, respectively,
compared to 87% and 1.05X at the last review.
The second largest loan is the Anchored Retail Portfolio Loan ($35.8
million -- 10.4% of the pool), which is secured
by 14 retail centers ranging in size from 6,054 square feet (SF)
to 58,343 SF and totaling 369,618 SF. Thirteen of the
properties are located in Quebec and one is located in Ontario.
Properties are primarily anchored by Jean Coutu (34% of net rentable
area), a Canadian pharmacy chain, with leases maturing in
2020. Financial performance improved in 2013 due to higher base
rents and a slight increase in occupancy since last review. The
loan has amortized 15% since securitization. Moody's LTV
and stressed DSCR are 88% and 1.1X, respectively,
compared to 110% and 0.89X at the last review.
The third largest loan is the Halifax Marriott Loan ($23.7
million -- 6.9% of the pool), which is secured
by a six-story full service hotel located on Halifax's waterfront
at the northern edge of the central business district. The property
is connected to the Halifax Casino via a pedestrian walkway. Performance
declined since last review due to a decrease occupancy and an increase
in operating expenses. At year-end 2013, the hotel's
occupancy and revenue per available room (RevPAR) were 63.9%
and $103.04 compared to 65.8% and $108.67
at last review. The loan has amortized 20% since securitization.
Moody's LTV and stressed DSCR are 81% and 1.47X, respectively,
compared to 68% and 1.75X at the last review.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Rhett Terrell
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms Ten and Upgrades Three Classes of MLFA 2006-CAN18
