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Global Credit Research - 09 Sep 2010
Approximately $302.2 Million of Structured Securities Affected
New York, September 09, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of three classes
of LaSalle Commercial Mortgage Securities Inc., Series 2006-MF3
US$295.524M Cl. A Certificate, Downgraded to
C (sf); previously on Dec 10, 2009 Downgraded to B1 (sf)
US$6.711M Cl. B Certificate, Downgraded to
C (sf); previously on Dec 10, 2009 Downgraded to Ca (sf)
Cl. X Certificate, Downgraded to C (sf); previously
on Dec 10, 2009 Downgraded to B1 (sf)
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced loans.
This transaction is classified as a small balance CMBS transaction.
Small balance transactions, which represent approximately 1%
of the Moody's rated conduit/fusion universe, have generally
experienced higher defaults and losses than traditional conduit and fusion
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.
The principal methodology used in rating LaSalle Commercial Mortgage Securities
Inc., Series 2006-MF3 is "CMBS: Moody's
Approach to Small Loan Transactions" rating methodology published
in December 2004. Other methodologies and factors that may have
been considered in the process of rating this issuer can also be found
on Moody's website. 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 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
underlying ratings 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 underlying ratings in the same
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 December 10, 2009.
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
As of the August 20, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 39% to $302.2
million from $493.4 million at securitization. The
Certificates are collateralized by 303 mortgage loans ranging in size
from less than 1% to 1.4% of the pool, with
the top ten loans representing 11% of the pool. The pool
has a Herfindahl (Herf) score of 206 compared to 235 at Moody's
One hundred nine loans, representing 36% 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
Sixty-nine loans have been liquidated from the pool, resulting
in an aggregate realized loss of $53.7 million (87%
loss severity on average). These losses have resulted in the elimination
of Classes C through N and a 16% principal loss on Class B.
Currently, there are 59 loans, representing 19% of
the pool, in special servicing. The master servicer has recognized
an aggregate $11.1 million appraisal reduction for the specially
serviced loans. Moody's has estimated an aggregate $49.9
million loss for the specially serviced loans (87% expected loss
on average). Moody's rating action reflects a cumulative
base expected loss of 18% of the current balance.
The pool has also experienced significant interest shortfalls.
Based on the most recent remittance statement, the pool has experienced
cumulative interest shortfalls totaling $908,031.
Moody's anticipates that the pool will continue to experience interest
shortfalls because of the high exposure to specially serviced loans.
Interest shortfalls are caused by special servicing fees, including
workout and liquidation fees, appraisal subordinate entitlement
reductions (ASERs) and extraordinary trust expenses.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
confidential and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of maintaining
a credit rating.
However, the credit rating action was based on limited historical
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.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades Three CMBS Classes of LaSalle 2006-MF3
250 Greenwich Street
New York, NY 10007
No Related Data.
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