Approximately $152.7 Million of Structured Securities Affected
New York, September 02, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of three classes,
confirmed two and affirmed three classes of Merrill Lynch Financial Assets
Inc., Commercial Mortgage Pass-Through Certificates,
2001-Canada 5. Moody's rating action is as follows:
CAD119.754M Cl. A-2 Certificate, Affirmed at
Aaa (sf); previously on May 18, 2001 Definitive Rating Assigned
CAD7.462M Cl. B Certificate, Confirmed at Aaa (sf);
previously on Jul 8, 2010 Aaa (sf) Placed Under Review for Possible
CAD7.462M Cl. C Certificate, Confirmed at A1 (sf);
previously on Jul 8, 2010 A1 (sf) Placed Under Review for Possible
CAD9.949M Cl. D Certificate, Downgraded to Ba2 (sf);
previously on Jul 8, 2010 Baa2 (sf) Placed Under Review for Possible
CAD1.866M Cl. E Certificate, Downgraded to B2 (sf);
previously on Jul 8, 2010 Baa3 (sf) Placed Under Review for Possible
CAD4.974M Cl. F Certificate, Downgraded to C (sf);
previously on Jul 8, 2010 B2 (sf) Placed Under Review for Possible
CAD1.253M Cl. G Certificate, Affirmed at C (sf);
previously on Jul 8, 2010 Downgraded to C (sf)
Cl. X Certificate, Affirmed at Aaa (sf); previously
on May 18, 2001 Definitive Rating Assigned Aaa (sf)
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans, concerns about refinance risk associated with loans maturing
in an adverse environment, a decline in loan diversity, and
increased interest shortfalls.The confirmations and affirmations
are due to key parameters, including Moody's loan to value
(LTV) ratio and Moody's stressed debt service coverage ratio (DSCR),
remaining within acceptable ranges. Based on our current base expected
loss, the credit enhancement levels for the confirmed and affirmed
classes are sufficient to maintain the existing ratings.
On July 8, 2010, Moody's placed five classes on review
for possible downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of
3.4% of the current balance. At last review,
Moody's cumulative base expected loss was 8.0%.
Moody's stressed scenario loss is 6.2% 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
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 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 methodologies used in rating MLFA 2001-Canada 5 were "Moody's Approach to Rating Canadian CMBS" rating methodology published in May 2000 and "Moody's Approach to Rating Large Loan/Single Borrower Transactions" rating methodology published in July 2000. 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
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 July 17, 2008. 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 reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the ratings.
As of the August 16, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 39% to $152.7
million from $248.7 million at securitization. The
Certificates are collateralized by 38 mortgage loans ranging in size from
less than 1% to 12% of the pool, with the top ten
loans representing 56% of the pool. Twelve loans,
representing 21% of the pool, have defeased and are collateralized
with U.S. Government securities. Defeasance at last
review represented 19% of the pool.
Two loans, representing 7% 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
Two loans have been liquidated from the pool, resulting in an aggregate
realized loss of $8.7 million. The disposition of
these loans, which were secured by hotel properties located in Niagara
Falls, Canada, resulted in a 100% loss severity.
One loan, representing 4% of the pool, is currently
in special servicing. This loan is the Skeena Mall Loan ($6.5
million -- 4% of the pool), which is secured by a retail
center located in Terrace, British Columbia. The loan was
transferred to special servicing in February 2009 due to delinquency and
is currently 90+ days delinquent. The property was 51%
leased as of June 2010 which is the same as at last review. The
servicer has recognized an appraisal reduction of $2.9 million
for this loan. Moody's has estimated an aggregate $3.2
million loss (49% expected loss on average) for this specially
Based on the most recent remittance statement, Classes F through
NR have experienced cumulative interest shortfalls totaling $470,780.
Moody's anticipates that the pool will continue to experience interest
shortfalls caused by the specially serviced loan. Interest shortfalls
are caused by special servicing fees, including workout and liquidation
fees, appraisal subordinate entitlement reductions (ASERs) and extraordinary
Moody's was provided with full year 2009 operating results for 65%
of the pool. Excluding the specially serviced loan and defeased
loans, Moody's weighted average LTV is 52% compared
to 71% at Moody's prior review. Moody's net
cash flow reflects a weighted average haircut of 14.2% to
the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.7%.
Excluding the specially serviced loan and defeased loans, Moody's
actual and stressed DSCRs are 1.77X and 2.22X, respectively,
compared to 1.50X and 1.78X 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 14
compared to 19 at Moody's prior review.
The top three performing conduit loans represent 12% of the pool
balance. The largest loan is the York Mills Gardens Loan ($17.6
million -- 11.5% of the pool), which is secured
by a retail center located in Toronto, Ontario. The largest
tenants at the center are Longo's, Shopper's Drug Mart
and Roger's Video. The property was 97% leased as
of August 2010 compared to 99% at last review. The loan
has amortized 4% since last review. Moody's LTV and
stressed DSCR are 60% and 1.6X, respectively,
compared to 63% and 1.5X at last review.
The second largest loan is the Delta Bow Valley Loan ($15.3
million -- 10.0% of the pool), which is secured
by a 398 room full service hotel located in Calgary, Alberta.
The property was had an occupancy of 63% in 2009 compared to 66%
at last review. The loan has amortized 5% since last review.
Moody's LTV and stressed DSCR are 43% and 2.78X,
respectively, compared to 65% and 1.82X at last review.
The third largest loan is the Dundas Kipling II Loan ($11.9
million -- 7.8% of the pool), which is secured
by a 134,237 square foot office property located in Toronto,
Ontario. The property was 99% leased as of August 2009 which
is the same as at last review. The loan has amortized 4%
since last review. Moody's LTV and stressed DSCR are 60%
and 1.70X, respectively, the same as at last review.
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
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of maintaining
a credit rating.
Moody's Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit 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, Confirms Two and Affirms Three CMBS Classes of MLFA 2001-Canada 5
250 Greenwich Street
New York, NY 10007