Approximately $298.9 Million of Structured Securities Affected
New York, February 16, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of four classes
and affirmed fourteen classes of Merrill Lynch Financial Assets Inc.,
Commercial Mortgage Pass-Through Certificates, Series 2005-Canada
15 as follows:
A-1, Affirmed at Aaa (sf); previously on Apr 11,
2005 Definitive Rating Assigned Aaa (sf)
A-2, Affirmed at Aaa (sf); previously on Apr 11,
2005 Definitive Rating Assigned Aaa (sf)
XC-1, Affirmed at Aaa (sf); previously on Apr 11,
2005 Definitive Rating Assigned Aaa (sf)
XC-2, Affirmed at Aaa (sf); previously on Apr 11,
2005 Definitive Rating Assigned Aaa (sf)
XP-1, Affirmed at Aaa (sf); previously on Apr 11,
2005 Definitive Rating Assigned Aaa (sf)
XP-2, Affirmed at Aaa (sf); previously on Apr 11,
2005 Definitive Rating Assigned Aaa (sf)
B, Upgraded to Aaa (sf); previously on Oct 16, 2007 Upgraded
to Aa1 (sf)
C, Upgraded to Aa3 (sf); previously on Apr 11, 2005 Definitive
Rating Assigned A2 (sf)
D-1, Upgraded to Baa1 (sf); previously on Apr 11,
2005 Definitive Rating Assigned Baa2 (sf)
D-2, Upgraded to Baa1 (sf); previously on Apr 11,
2005 Definitive Rating Assigned Baa2 (sf)
E-1, Affirmed at Baa3 (sf); previously on Apr 11,
2005 Definitive Rating Assigned Baa3 (sf)
E-2, Affirmed at Baa3 (sf); previously on Apr 11,
2005 Definitive Rating Assigned Baa3 (sf)
F, Affirmed at Ba1 (sf); previously on Apr 11, 2005 Definitive
Rating Assigned Ba1 (sf)
G, Affirmed at Ba2 (sf); previously on Apr 11, 2005 Definitive
Rating Assigned Ba2 (sf)
H, Affirmed at Ba3 (sf); previously on Apr 11, 2005 Definitive
Rating Assigned Ba3 (sf)
J, Affirmed at B2 (sf); previously on Dec 3, 2009 Downgraded
to B2 (sf)
K, Affirmed at Caa1 (sf); previously on Dec 3, 2009 Downgraded
to Caa1 (sf)
L, Affirmed at Caa2 (sf); previously on Dec 3, 2009 Downgraded
to Caa2 (sf)
RATINGS RATIONALE
The upgrades are due to increased subordination from loan payoffs and
amortization and the pool's overall improved performance. The pool
has paid down 33% since securitization and 18% since last
review. Defeasance currently accounts for 10% of the pool
compared to 9% at last review.
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio, Moody's stressed 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 cumulative base expected and stressed scenario
loss estimates of 1.8% and 3.8% of the current
pooled balance, respectively. At last review, Moody's
cumulative base expected loss estimate was 1.9%.
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 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 this rating were "Moody's Approach
to Rating Canadian CMBS" published in May 2000 and "Moody's Approach to
Rating Fusion Transactions" published April 2005.
In addition to methodologies and research available on moodys.com,
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
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 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 23
compared to 27 at Moody's prior full 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 December 3, 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 six months.
DEAL PERFORMANCE
As of the February 12, 2011 distribution date, the transaction's
aggregate certificate balance decreased by 33% to $298.9
million from $444.0 million at securitization. The
Certificates are collateralized by 43 mortgage loans ranging in size from
less than 1% to 12.9% of the pool, with the
top ten loans representing 48% of the pool. Two loans,
representing 10% of the pool, have defeased and are collateralized
by Canadian Government securities. One loan, representing
12.9% of the pool, has an investment grade credit
estimate.
Five loans, representing 6% 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.
One loan has been liquidated resulting in a $630,000 loss
(41% loss severity) to the trust. Currently there are no
specially serviced or delinquent loans.
Moody's has assumed a high default probability for one of the loans on
the watchlist. The troubled loan represents 3% of the pool.
Moody's has estimated a $1.5 million loss (based on
a 50% probability of default and 40% loss given default
on average) from the troubled loan.
Moody's was provided with full year 2009 operating results for 94%
of the pool. Excluding the troubled loan and loan with a credit
estimate, Moody's weighted average LTV is 76% compared to
77% at last full review. Moody's net cash flow reflects
a weighted average haircut of 13% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.1%.
Excluding the troubled loans and loan with a credit estimate, Moody's
actual and stressed DSCRs are 1.50X and 1.32X, respectively,
compared to 1.51X and 1.30X 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 loan with a credit estimate is the EPR Pooled Senior Interest Loan
($38.5 million -- 12.9%), which
is a 50% pari passu interest in a $77.4 million first
mortgage. The loan is secured by four separate multiplex anchored
retail plazas totaling 985,000 square feet (SF). All four
multiplexes are operated by AMC Cinemas. The portfolio's
weighted average occupancy on December 31, 2009 was 98% as
compared to 99% at last review. The sponsor, Entertainment
Properties Trust (Moody's senior unsecured rating Baa3, stable outlook),
reports $2.9 billion of assets including 96 multiplex theatres
as of September 30, 2010. The loan benefits from a 20 year
amortization schedule and has amortized 19% since securitization
and 5% since last review. Moody's credit estimate and stressed
DSCR are Aaa and 3.21X, respectively, compared to Aaa
and 2.91X at last review.
The top three conduit loans represent 16.6% of the pool.
The largest conduit loan is the Calloway Saint John Loan ($20.9
million - 7%), which is secured by a 271,000
SF Wal-Mart anchored retail center located in St. John,
New Brunswick. The retail center is also shadow anchored by a Canadian
Tire Store and Kent Home Improvement Centre. Wal-Mart leases
47% of the net rentable area (NRA) through November 2019.
The center is 100% leased as of October 2010, which is the
same as last review. Only 12% of the leases expire in 2011-12.
The loan is full recourse to Calloway REIT. Moody's LTV and stressed
DSCR are 69% and 1.34X, respectively, as compared
to 70% and 1.31X at last review.
The second largest conduit loan is the 276-288 St Jacques Loan
($15.3 million -- 5.1%), which
is secured by a 236,000 SF office property located in Old Montreal,
Quebec. The property was 99% leased on December 31,
2010, the same as last review. The Government of Quebec leases
approximately 55% of the NRA with lease expirations ranging from
2015-17. Moody's LTV and stressed DSCR are 74% and
1.35X, respectively, compared to 77% and 1.29X
at last review.
The third largest conduit loan is the Macleod Plaza Loan ($13.5
million -- 4.5%), which is secured by a 124,000
SF Office Depot anchored shopping center located in south Calgary,
Alberta. The property was 98% leased on December 31,
2009, the same as at last review. Moody's LTV and stressed
DSCR are 70% and 1.44X, respectively, compared
to 74% and 1.36X 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
Peter Simon
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 Upgrades Four and Affirms 14 CMBS Classes of MLFA 2005-Canada 15
