Approximately $284.5 Million of Structured Securities Affected
New York, January 28, 2011 -- Moody's Investors Service (Moody's) upgraded the rating of one class and
affirmed six classes of Merrill Lynch Mortgage Investors, Inc.,
Mortgage Pass-Through Certificates, Series 1998-C1-CTL
as follows:
Cl. A-3, Affirmed at Aaa; previously on Oct 5,
1999 Confirmed at Aaa
Cl. A-PO, Affirmed at Aaa; previously on Oct
5, 1999 Confirmed at Aaa
Cl. IO, Affirmed at Aaa; previously on Oct 5,
1999 Confirmed at Aaa
Cl. B, Upgraded to Aaa; previously on Apr 18,
2007 Upgraded to Aa1
Cl. C, Affirmed at A3; previously on Jul 23, 2009
Downgraded to A3
Cl. D, Affirmed at Ba2; previously on Jul 23,
2009 Downgraded to Ba2
Cl. E, Affirmed at B3; previously on Jul 23, 2009
Downgraded to B3
RATINGS RATIONALE
The upgrade is due to increased credit subordination levels resulting
from paydowns and amortization. The pool has paid down 13%
since Moody's prior review.
Moody's affirmed six classes because the current credit enhancement
levels for the affirmed classes are sufficient to maintain their current
ratings based on our current base expected loss.
Moody's rating action reflects a cumulative base expected loss of
13.4% of the current balance. Moody's stressed
scenario loss is 16.7% 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.
Due to the high level of credit subordination and defeasance, it
is unlikely that investment grade classes would be downgraded even if
losses are higher than Moody's expected base.
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 methodology used in this rating was: "CMBS:
Moody's Approach to Rating Credit Tenant Lease (CTL) Backed Transactions"
published in October 1998.
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 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 16
compared to 19 at Moody's prior review.
In rating this transaction, Moody's used its credit-tenant
lease (CTL) financing rating methodology (CTL approach) for single tenants.
Under Moody's CTL approach, the rating of a transaction's certificates
is primarily based on the senior unsecured debt rating (or the corporate
family rating) of the tenant, usually an investment grade rated
company, leasing the real estate collateral supporting the bonds.
This tenant's credit rating is the key factor in determining the
probability of default on the underlying lease. The lease generally
is "bondable", which means it is an absolute net lease,
yielding fixed rent paid to the trust through a lock-box,
sufficient under all circumstances to pay in full all interest and principal
of the loan. The leased property should be owned by a bankruptcy-remote,
special purpose borrower, which grants a first lien mortgage and
assignment of rents to the securitization trust. The dark value
of the collateral, which assumes the property is vacant or "dark",
is then examined to determine a recovery rate upon a loan's default.
Moody's also considers the overall structure and legal integrity
of the transaction.
For deals that consist of a pool of credit tenant loans, Moody's
currently uses a Gaussian copula model, incorporated in its public
CDO rating model CDOROMv2.6 to generate a portfolio loss distribution
to assess the ratings.
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 23, 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 January 16, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 46% to $335.9
million from $630.4 million at securitization. The
Certificates are collateralized by 91 mortgage loans ranging in size from
less than 1% to 16% of the pool, with the top ten
non-defeased loans representing 35% of the pool.
Eighty of the loans are CTL loans secured by properties leased to 12 corporate
credits. Eleven loans, representing 26% of the pool,
have defeased and are collateralized with U.S. Government
securities. At last review defeasance represented 25% of
the pool balance.
Sixteen loans have been liquidated from the pool, resulting in an
aggregate realized loss of $22.7 million (49% loss
severity on average). Due to realized losses, classes G,H,
J and K have been eliminated entirely and class F has experienced a 11%
principal loss. At Moody's prior review the pool had experienced
an aggregate $10.8 million realized loss.
One loan, representing 1% of the pool, is on the master
servicer's watchlist. Four loans, representing 5%
of the pool, are currently in special servicing. All of the
specially serviced loans are secured by retail properties previously leased
to Circuit City, which declared bankruptcy in late 2008 and subsequently
closed all its stores. Moody's estimates an aggregate loss of $11.6
million (75% loss severity on average) for the specially serviced
loans. Moody's expected loss is based on the recent liquidation
of four loans previously occupied by Circuit City which experienced an
average severity of 74%.
Based on the most recent remittance statement, Classes K through
F have experienced cumulative interest shortfalls totaling $4.9
million. Moody's anticipates that the pool will continue to experience
interest shortfalls because of the exposure to specially serviced loans.
Interest shortfalls are caused by special servicing fees, including
workout and liquidation fees, appraisal subordinate entitlement
reductions (ASERs), extraordinary trust expenses and non-advancing
by the master servicer based on a determination of non-recoverability.
The pool's largest exposures are Rite Aid Corporation ($86.3
million - 26% of the pool balance; Moody's senior unsecured
rating Caa3 - stable outlook), Georgia Power Company ($54.5
million - 16%; Moody's senior unsecured rating A3 -
stable outlook), Kroger Co. ($28.6 million
-- 9%; Moody's senior unsecured rating Baa2 --
stable outlook), and Circuit City ($22.6 million -
7%) Approximately 73% of the pool, excluding defeased
loans, are publicly rated by Moody's.
The bottom-dollar weighted average rating factor (WARF) for this
pool is 3,419 compared to 3,414 at last review. WARF
is a measure of the overall quality of a pool of diverse credits.
The bottom-dollar WARF is a measure of the default probability
within the pool.
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
Dariusz Surmacz
Asst Vice President - 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 One and Affirms Six CMBS Classes of MLMI 1998-C1
