Approximately $914,000 of Structured Securities Affected
New York, March 23, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of two classes
of Merrill Lynch Mortgage Investors Commercial Mortgage Pass-Through
Certificates, Series 1997-C2 as follows:
Cl. IO, Affirmed at Aaa (sf); previously on Dec 23,
1997 Assigned Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on Dec 8,
2006 Upgraded to Aaa (sf)
RATINGS RATIONALE
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 reflects a cumulative base expected loss of
4.6% of the current balance and a stressed scenario loss
of 10.7% 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 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
July 2000 both of which are available on Moody's website at www.moodys.com.
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 6 compared
to 7 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 May 19, 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 report(s) on the underlying assets or financial
instruments in this transaction and the due diligence report(s) had a
neutral impact on the ratings.
DEAL PERFORMANCE
As of the March 11, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 5% to $914,000
from $686 million at securitization. The Certificates are
collateralized by 11 mortgage loans ranging in size from less than 1%
to 25% of the pool, with the top ten loans representing 95%
of the pool. No loans have defeased.
There are no loans on the master servicer's watchlist. Eighteen
loans have been liquidated from the pool since securitization, resulting
in a $21.9 million loss (59% average loss severity).
The pool had experienced an aggregate $20.6 million loss
at last review. There is presently one loan in special servicing.
The Lima Plaza Loan ($2.96 million -- 5.3%
of the pool) is secured by a retail center totaling 154,637 square
feet (SF) located in Lima, Ohio. This loan was transferred
to special servicing in July 2010 at the borrower's request for
a loan modification and remains current. Moody's estimates
a $1.5 million loss (49% expected loss) for this
specially serviced loan.
As of the most recent remittance statement date, the transaction
has experienced unpaid accumulated interest shortfalls totaling $640,000
affecting Classes H through K. Interest shortfalls are caused by
special servicing fees, appraisal reductions, extraordinary
trust expenses and interest payment reductions due to loan modifications.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 100% and 91%, respectively, of the
pool. Excluding specially serviced loans, Moody's weighted
average LTV is 72% compared to 67% at Moody's prior
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
9.7%.
Excluding specially serviced loans, Moody's actual and stressed
DSCRs are 1.21X and 1.58X, respectively, compared
to 1.22X and 1.60X 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 64% of the pool
balance. The largest loan is the Northlake Tower Festival Loan
($14.1 million -- 25.1% of the pool),
which is secured by a 322,000 SF retail center located in Tucker,
Georgia. As of December 2010, the property was 71%
leased versus 84% at last review. The property's performance
has declined in concert with lower occupancy. Moody's LTV
and stressed DSCR are 103% and 1.05X, respectively,
compared to 93% and 1.04X at last review.
The second largest conduit loan is the Links at Jonesboro Loan ($11.1
million -- 19.7% of the pool), which is secured
by a 432-unit apartment complex located in Jonesboro, Arkansas.
As of September 2010, the property was 98% leased versus
98% at last review. Moody's LTV and stressed DSCR
are 62% and 1.67X, respectively, compared to
65% and 1.22X at last review.
The third largest conduit loan is the Harbor Pointe Apartments Loan ($10.5
million -- 18.7% of the pool), which is secured
by a 344-unit apartment complex located in Mount Pleasant,
South Carolina. The property was 84% occupied as of September
2010 versus 85% at last review. Financial performance has
improved since last review due to fewer concessions. Moody's
LTV and stressed DSCR are 69% and 1.49X, respectively,
compared to 77% and 1.02X at last review.
New York
Gregory Reed
Vice President - Senior 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 Two CMBS Classes of MLMI 1997-C2
