Approximately $4.4 Billion of Structured Securities Affected
New York, March 02, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 26 classes
of ML-CFC Commercial Mortgage Trust 2006-4 Commercial Mortgage
Pass-Through Certificates, Series 2006-4 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jan 3, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-2FL, Affirmed at Aaa (sf); previously on
Jan 3, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-2FX, Affirmed at Aaa (sf); previously on
Mar 15, 2010 Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jan 3, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-1A, Affirmed at Aaa (sf); previously on
Jan 3, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-SB, Affirmed at Aaa (sf); previously on
Jan 3, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XP, Affirmed at Aaa (sf); previously on Jan 3,
2007 Definitive Rating Assigned Aaa (sf)
Cl. XC, Affirmed at Aaa (sf); previously on Jan 3,
2007 Definitive Rating Assigned Aaa (sf)
Cl. AM, Affirmed at Aa2 (sf); previously on Apr 22,
2010 Downgraded to Aa2 (sf)
Cl. AJ, Affirmed at Baa3 (sf); previously on Apr 22,
2010 Downgraded to Baa3 (sf)
Cl. AJ-FL, Affirmed at Baa3 (sf); previously
on Apr 22, 2010 Downgraded to Baa3 (sf)
Cl. AJ-FX, Affirmed at Baa3 (sf); previously
on Apr 22, 2010 Downgraded to Baa3 (sf)
Cl. B, Affirmed at Ba2 (sf); previously on Apr 22,
2010 Downgraded to Ba2 (sf)
Cl. C, Affirmed at B1 (sf); previously on Apr 22,
2010 Downgraded to B1 (sf)
Cl. D, Affirmed at B2 (sf); previously on Apr 22,
2010 Downgraded to B2 (sf)
Cl. E, Affirmed at B3 (sf); previously on Apr 22,
2010 Downgraded to B3 (sf)
Cl. F, Affirmed at Caa2 (sf); previously on Apr 22,
2010 Downgraded to Caa2 (sf)
Cl. G, Affirmed at Ca (sf); previously on Apr 22,
2010 Downgraded to Ca (sf)
Cl. H, Affirmed at Ca (sf); previously on Apr 22,
2010 Downgraded to Ca (sf)
Cl. J, Affirmed at C (sf); previously on Apr 22,
2010 Downgraded to C (sf)
Cl. K, Affirmed at C (sf); previously on Apr 22,
2010 Downgraded to C (sf)
Cl. L, Affirmed at C (sf); previously on Apr 22,
2010 Downgraded to C (sf)
Cl. M, Affirmed at C (sf); previously on Apr 22,
2010 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Apr 22,
2010 Downgraded to C (sf)
Cl. P, Affirmed at C (sf); previously on Apr 22,
2010 Downgraded to C (sf)
Cl. Q, Affirmed at C (sf); previously on Apr 22,
2010 Downgraded to C (sf)
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
8.3% of the current balance. At last review,
Moody's cumulative base expected loss was 8.7%.
Moody's stressed scenario loss is 26.9% 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 methodology used in this rating was "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
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 paydown 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 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 22, 2010. 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 February 14, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 3% to $4.4
billion from $4.5 billion at securitization. The
Certificates are collateralized by 270 mortgage loans ranging in size
from less than 1% to 9% of the pool, with the top
ten loans representing 35% of the pool. The pool contains
one loan with an investment grade credit estimate that represents 1%
of the pool.
Sixty-eight loans, representing 25% 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
performance.
Ten loans have been liquidated from the pool, resulting in an aggregate
realized loss of $28 million (61% loss severity overall).
Thirty-three loans, representing 12% of the pool,
are currently in special servicing. Moody's has estimated
an aggregate $190.1 million loss (43% expected loss
on average) for the specially serviced loans.
Moody's has assumed a high default probability for 14 poorly performing
loans representing 2% of the pool and has estimated a $9.7
million aggregate 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 91% and 85% of the pool's loans,
respectively. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 124% compared to 118%
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 9.3%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.21X and 0.84X, respectively,
compared to 1.26X and 0.90X 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.
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 48
compared to 49 at Moody's prior review.
The loan with a credit estimate is the White Oaks Mall Loan ($50
million -- 1.1%), which is secured by a 834,000
square foot regional mall located in Springfield, Illinois.
The loan is interest only for its entire 10 year term. The property
was 89% leased as of December 2010, the same at last review.
The center is anchored by Sears, Macy's and Bergner's.
Performance has declined since last review due to a decrease in tenant
income. Moody's current credit estimate and stressed DSCR are A3
and 1.56X, respectively, compared to Aa1 and 2.0X
at last review.
The top three performing conduit loans represent 18% of the pool
balance. The largest loan is the Park La Brea Apartments Loan ($387.5
million -- 8.8%), which represents a pari passu
interest in a $775 million first mortgage loan. The loan
is secured by a 4,238-unit multifamily complex located in
Hollywood, California. The property was 96% occupied
as of December 2010 compared to 98% at last review. Property
performance has improved since last review. The loan is interest
only for its entire 10 year term. Moody's LTV and stressed
DSCR are 99% and 0.82X, respectively, compared
to 119% and 0.84X at last review.
The second largest loan is the Beacon Office Portfolio Loan ($225
million -- 5.1%), which is secured by two adjacent
Class B office properties located in Chicago, Illinois. The
properties were 89% leased as of September 2010 compared to 92%
at last review. The loan matures in November 2011. Moody's
LTV and stressed DSCR are 124% and 0.81X, respectively,
essentially the same as at last review.
The third largest loan is the First Colony Mall Loan ($183.6
million -- 4.2%), which is secured by a 416,000
square foot retail center located in Sugar Land, Texas. The
property was 98% leased as of September 2010, the same at
last review. Performance has been stable. Moody's
LTV and stressed DSCR are 109% and 0.84X, respectively,
compared to 107% and 0.88X at last review.
New York
Raymond Flores
Associate 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 the CMBS Ratings of ML-CFC 2006-4
