Approximately $470.5 million of Structured Securities Affected
New York, January 28, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of two classes
and affirmed 16 classes of Real Estate Asset Liquidity Trust Commercial
Mortgage Pass-Through Certificates, Series 2007-1
as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XP-1, Affirmed at Aaa (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XP-2, Affirmed at Aaa (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XC-1, Affirmed at Aaa (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Aaa (sf)
Cl. XC-2, Affirmed at Aaa (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aa2 (sf); previously on Apr 26,
2007 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed at A2 (sf); previously on Apr 26,
2007 Definitive Rating Assigned A2 (sf)
Cl. D-1, Affirmed at Baa2 (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Baa2 (sf)
Cl. D-2, Affirmed at Baa2 (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Baa2 (sf)
Cl. E-1, Affirmed at Baa3 (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Baa3 (sf)
Cl. E-2, Affirmed at Baa3 (sf); previously on
Apr 26, 2007 Definitive Rating Assigned Baa3 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on Apr 26,
2007 Definitive Rating Assigned Ba1 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Apr 26,
2007 Definitive Rating Assigned Ba2 (sf)
Cl. H, Affirmed at Ba3 (sf); previously on Apr 26,
2007 Definitive Rating Assigned Ba3 (sf)
Cl. J, Affirmed at B1 (sf); previously on Apr 26,
2007 Definitive Rating Assigned B1 (sf)
Cl. K, Downgraded to B3 (sf); previously on Apr 26,
2007 Definitive Rating Assigned B2 (sf)
Cl. L, Downgraded to Caa2 (sf); previously on Apr 26,
2007 Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The downgrades are due to expected losses for the pool resulting from
anticipated losses from troubled loans.
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
1.5% of the current balance. At last review,
Moody's cumulative base expected loss was 1.2%.
Moody's stressed scenario loss is 5.3% 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 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 and monitoring this transaction
is "Moody's Approach to Rating Canadian CMBS" dated May 26,
2000, which can be found at www.moodys.com.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Credit Policy & Methodologies
directory.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies in "Structured Finance Quick Check,"
available without charge 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
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 February 11, 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 January 12, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 7.5% to $475.6
million from $514 million at securitization. The Certificates
are collateralized by 76 mortgage loans ranging in size from less than
1% to 9% of the pool, with the top ten loans representing
51% of the pool. The pool contains three loans with investment
grade credit estimates that represent 20% of the pool. One
loan, representing 0.4% of the pool, has defeased
and is collateralized with Canadian Government securities.
Four loans, representing 4% 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.
The pool has not realized any losses since securitization. There
are no loans currently in special servicing.
Moody's was provided with full year 2009 operating results for 63%
of the pool. Excluding troubled loans, Moody's weighted
average LTV is 85% compared to 89% 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
9.1%.
Excluding troubled loans, Moody's actual and stressed DSCRs
are 1.43X and 1.28X, respectively, compared
to 1.39X and 1.21X 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 26
compared to 27 at Moody's prior review.
The largest loan with a credit estimate is the Langley Power Centre Loan
($39.5 million -- 8.3%), which
is secured by 228,314 square foot anchored retail center located
in Langley, British Columbia. The loan amortizes on a 30-year
schedule. Performance has been stable. The loan is 100%
recourse to RioCan Real Estate Investment Trust. Moody's current
credit estimate is Baa2, same at last review.
The other two loans with credit estimate ratings represent 12%
of the pool. The Atrium Pooled Interest A-Note ($38.7
million -- 8.1%) is secured by a 1,050,196
square foot office/retail complex located in Toronto, Ontario.
Moody's current credit estimate and stressed DSCR are A2 and 1.62X,
respectively, compared to A3 and 1.44X at last review.
The PDC Senior Interest A-Note ($19.3 million -
4%) is secured by a 164,774 square foot office property located
in Verdun, Quebec. Moody's current credit estimate Baa3 and
1.43 X, respectively, compared to Baa3 and 1.31X
at last review.
The top three performing conduit loans represent 19.6% of
the pool balance. The largest loan is the Conundrum Portfolio Loan
($37.1 million -- 7.8%), which
is secured by a 588,650 square foot mixed-use portfolio consisting
of nine industrial properties, five unanchored-retail properties
and one office property located in five cities in Ontario. The
portfolio was 86% leased as of December 2009 compared to 97%
at last review. Despite the decline in occupancy, performance
has increased due to increased revenues. Moody's LTV and
stressed DSCR are 100% and 1.03X, respectively,
compared to 110% and 0.89X at last review.
The second largest loan is the Mississauga Office Loan ($30.1
million -- 6.3%), which is secured by a four
office properties totaling 225,123 square feet located in Mississauga,
Ontario. The portfolio was 95% leased as of March 2010,
similar at last review. Moody's LTV and stressed DSCR are
87% and 1.12X, respectively, compared to 94%
and 1.04X at last review.
The third largest loan is the Sundance Pooled Interest Loan ($26
million -- 5.5%), which is secured by a 179,619
square foot office building located in Calgary, Alberta.
The property was 100% leased as of April 2010, similar at
last review. Moody's LTV and stressed DSCR are 93%
and 1.02X, respectively, compared to 111% and
0.86X 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
Keith Banhazl
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 Downgrades Two and Affirms 16 CMBS Classes of REAL-T 2007-1
