Approximately $2.5 Billion of Structured Securities Affected
New York, March 30, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of six classes
and affirmed thirteen classes of ML-CFC Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 2007-7
as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jun 20, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-2FL, Affirmed at Aaa (sf); previously on
Jun 20, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-3FL, Affirmed at Aaa (sf); previously on
Jun 20, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-SB, Affirmed at Aaa (sf); previously on
May 26, 2010 Confirmed at Aaa (sf)
Cl. X, Affirmed at Aaa (sf); previously on Jun 20,
2007 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aa2 (sf); previously on
May 26, 2010 Downgraded to Aa2 (sf)
Cl. A-4FL, Affirmed at Aa2 (sf); previously on
May 26, 2010 Downgraded to Aa2 (sf)
Cl. A-1A, Affirmed at Aa2 (sf); previously on
May 26, 2010 Downgraded to Aa2 (sf)
Cl. AM, Affirmed at A3 (sf); previously on May 26,
2010 Downgraded to A3 (sf)
Cl. AM-FL, Affirmed at A3 (sf); previously on
May 26, 2010 Downgraded to A3 (sf)
Cl. AJ, Downgraded to Caa1 (sf); previously on May 26,
2010 Downgraded to B1 (sf)
Cl. AJ-FL, Downgraded to Caa1 (sf); previously
on May 26, 2010 Downgraded to B1 (sf)
Cl. B, Downgraded to Caa2 (sf); previously on May 26,
2010 Downgraded to Caa1 (sf)
Cl. C, Downgraded to Caa3 (sf); previously on May 26,
2010 Downgraded to Caa2 (sf)
Cl. D, Downgraded to Ca (sf); previously on May 26,
2010 Downgraded to Caa3 (sf)
Cl. E, Downgraded to C (sf); previously on May 26,
2010 Downgraded to Ca (sf)
Cl. F, Affirmed at C (sf); previously on May 26,
2010 Downgraded to C (sf)
Cl. G, Affirmed at C (sf); previously on May 26,
2010 Downgraded to C (sf)
Cl. H, Affirmed at C (sf); previously on May 26,
2010 Downgraded to C (sf)
RATINGS RATIONALE
The downgrades are due to realized and anticipated losses from specially
serviced and troubled loans and anticipated increases in interest shortfalls
due to recent loan modifications of several of the specially serviced
loans.
The affirmations are due to key parameters, including Moody's
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
10.1% of the current balance. At last review,
Moody's cumulative base expected loss was 13.6%.
Although the current base expected loss is lower than at the prior review,
the pool has realized an additional $106.2 million in realized
losses since last review. Moody's current base expected loss
plus aggregate realized losses is 14.2% compared to 13.9%
at last review. Moody's stressed scenario loss is 23.0%
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 was: "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 credit estimate 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 credit estimate 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 113
compared to 122 at Moody's prior review.
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 26, 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 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.
DEAL PERFORMANCE
As of the March 14, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 9% to $2.55
billion from $2.79 billion at securitization. The
Certificates are collateralized by 309 mortgage loans ranging in size
from less than 1% to 4% of the pool, with the top
ten loans representing 21% of the pool. The pool includes
two loans with investment-grade credit estimates, representing
less than 1% of the pool.
Eighty-one loans, representing 28% 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.
Nineteen loans have been liquidated from the pool, resulting in
an aggregate realized loss of $115.4 million (66%
loss severity overall). At the prior review, five loans had
been liquidated from the pool, resulting in an aggregate $9.1
million loss (24% loss severity on average). Currently there
are forty-three loans, representing 21% of the pool,
in special servicing.
The largest specially serviced loan is the One Pacific Plaza Loan ($105.0
million -- 4.1% of the pool), which is secured
by a 428,244 square foot (SF) office building located in Huntington
Beach, California. The loan was transferred to special servicing
in November 2009 due to the borrower disclosing it could no longer cover
debt service payments. The lender filed for foreclosure in January
2010 and a receiver was appointed in May 2010. The receiver engaged
a broker to market the property and the special servicer is currently
reviewing all offers received.
The second largest specially serviced loan is the 10 Milk Street Loan
($58.0 million -- 2.3% of the
pool), which is secured by a 229,843 SF class B office building
located in the financial district area of Boston, Massachusetts.
The loan was transferred to special servicing in March 2010 due to the
borrower's request for a loan modification. The borrower
and special servicer have successfully negotiated a modification of the
loan agreement. Major terms of the modification include an interest
rate reduction and all excess cash flow to be put into a TI/LC reserve.
Additionally, in the event that the borrower triggers an event of
default under the new loan terms, the borrower has agreed not to
dispute foreclosure/receivership.
The remaining 41 specially serviced properties are secured by a mix of
property types. Moody's has estimated an aggregate $162.3
million loss (32% expected loss on average) for all of the specially
serviced loans.
Moody's has assumed a high default probability for 36 poorly performing
loans representing 13% of the pool and has estimated an aggregate
$51 million 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 83% and 66% of the pool, respectively.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 112% compared to 129% at Moody's prior
review. Moody's net cash flow reflects a weighted average
haircut of 6% to the most recently available full year net operating
income. Moody's value reflects a weighted average capitalization
rate of 9.8%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.37X and 1.01X, respectively,
compared to 1.26X and 0.92X 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 three largest performing loans represent 7% of the outstanding
pool balance. The largest loan is the Commons at Calabasas Loan
($101.5 million -- 4.0% of the pool),
which is secured by a 171,097 SF grocery anchored retail center
located in Calabasas, California. As of September 2010 the
property was 100% leased compared to 99% at the prior review.
Tenants include Ralphs Grocery Co. (31% of the net rentable
area (NRA); lease expiration November 2023) and Edwards Theaters
(20% of the NRA; lease expiration December 2023). Moody's
LTV and stressed DSCR are 125% and 0.71X, respectively,
compared to 131% and 0.68X at last review.
The second largest performing loan is the Residence Inn Bethesda Loan
($46.3 million -- 1.8% of the
pool), which is secured by a 187 room extended stay hotel located
in Bethesda, Maryland. Occupancy and revenue per available
room (RevPAR) for the 12 month period ending December 2010 were 83%
and $150, respectively, compared to 85% and
$149 at the last review. Moody's LTV and stressed DSCR are
102% and 1.17X, respectively, compared to 117%
and 1.02X at last review.
The third largest performing loan is the Millbridge Apartments Loan ($40.0
million -- 1.6% of the pool), which
is secured by an 848 unit multifamily complex located in Clementon,
New Jersey. As of September 2010 the property was 90% leased
compared to 91% at the prior review. This loan is currently
on the master servicer's watchlist for failing a debt service coverage
test in September 2009 which could result in termination of the current
property management company. Moody's LTV and stressed DSCR are
97% and 0.95X, respectively, compared to 115%
and 0.80X at last review.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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.
New York
Amit Rustgi
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 Downgrades Six and Affirms Thirteen CMBS Classes of MLCFC 2007-7
