Approximately $11.9 million of Structured Securities Affected
New York, February 03, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of four classes
and affirmed eight classes of Claret Trust Commercial Mortgage Pass-Through
Certificates, Series 2006-1 as follows:
Cl. A Certificate, Affirmed at Aaa (sf); previously
on Jun 26, 2006 Definitive Rating Assigned Aaa (sf)
Cl. X Certificate, Affirmed at Aaa (sf); previously
on Jun 26, 2006 Definitive Rating Assigned Aaa (sf)
Cl. B Certificate, Affirmed at Aaa (sf); previously
on Feb 25, 2010 Upgraded to Aaa (sf)
Cl. C Certificate, Affirmed at Aaa (sf); previously
on Feb 25, 2010 Upgraded to Aaa (sf)
Cl. D Certificate, Upgraded to Aa1 (sf); previously
on Feb 25, 2010 Upgraded to Aa2 (sf)
Cl. E Certificate, Upgraded to A1 (sf); previously on
Feb 25, 2010 Upgraded to A2 (sf)
Cl. F Certificate, Upgraded to A3 (sf); previously on
Feb 25, 2010 Upgraded to Baa1 (sf)
Cl. G Certificate, Upgraded to Baa2 (sf); previously
on Feb 25, 2010 Upgraded to Baa3 (sf)
Cl. H Certificate, Affirmed at Ba2 (sf); previously
on Feb 25, 2010 Upgraded to Ba2 (sf)
Cl. J Certificate, Affirmed at B1 (sf); previously on
Jun 26, 2006 Definitive Rating Assigned B1 (sf)
Cl. K Certificate, Affirmed at B2 (sf); previously on
Jun 26, 2006 Definitive Rating Assigned B2 (sf)
Cl. L Certificate, Affirmed at B3 (sf); previously on
Jun 26, 2006 Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The upgrades are due to the significant increase in subordination due
to loan payoffs and amortization. The pool has paid down by 39%
since Moody's last review.
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
2.4% of the current balance. At last review,
Moody's cumulative base expected loss was 0.9%.
Moody's stressed scenario loss is 7.0% 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 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 rating and monitoring this transaction
is "Moody's Approach to Rating Canadian CMBS" published on
May 26, 2000 and "Moody's Approach to Rating Large Loan/Single Borrower
Transactions" published on July 7, 2000.
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
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 15
compared to 26 at Moody's prior review.
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 February, 25 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 17, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 76% to $92.3
million from $379.6 million at securitization. The
Certificates are collateralized by 23 mortgage loans ranging in size from
1% to 13% of the pool, with the top ten loans representing
66% of the pool. No loans have defeased and there are no
loans with credit estimates.
Four loans, representing 21% 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 and currently
there are no loans currently in special servicing.
Moody's was provided with full year 2009 operating results for 100%
of the pool. Moody's weighted average LTV is 61% compared
to 54% at Moody's prior 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%.
Moody's actual and stressed DSCRs are 1.44X and 1.74X,
respectively, compared to 1.69X and 2.04X 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 top three performing conduit loans represent 30% of the pool
balance. The largest loan is the Control Number 2 Loan ($11.4
million -- 12.3%), which is secured by a 305,267
square foot industrial building located in Calgary, Alberta.
The property was 90% leased as of January 2010 compared to 100%
at last review. Property performance has declined since last review.
Moody's LTV and stressed DSCR are 74% and 1.27X,
respectively, compared to 63% and 1.51X at last review.
The second largest loan is the Control Number 17 and 40 Loan ($8.6
million -- 9.3%), which is secured by two adjacent
retail properties totaling 108,091 square feet located in Orillia,
Ontario. The properties were 100% leased as of January 2010,
similar at last review. Moody's LTV and stressed DSCR are
56% and 1.70X, respectively, essentially the
same as at last review.
The third largest loan is the Control Number 5 Loan ($7.9
million -- 8.6%), which is secured by a 68,751
square foot office and retail building located in Calgary, Alberta.
The property was 100% leased as of March 2010, similar at
last review. Moody's is concerned about potential income
volatility due to leases representing 31% of the portfolio expiring
within the next 18 months. Moody's LTV and stressed DSCR
are 64% and 1.65X, respectively, compared to
60% and 1.76X 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 purpose 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
Raymond Flores
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 Eight CMBS Classes of CLRT 2006-1
