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Rating Action:

Moody's Upgrades Two CMBS Classes of MLFT 2006-1

27 Oct 2011

Approximately $376.1 million of Structured Securities Affected

New York, October 27, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes and affirmed the ratings of six classes of Merrill Lynch Floating Trust Commercial Pass-Through Certificates, Series 2006-1 as follows:

Cl. A-2, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

Cl. B, Upgraded to Aaa (sf); previously on Mar 9, 2011 Confirmed at Aa1 (sf)

Cl. C, Upgraded to Aa2 (sf); previously on Mar 5, 2009 Downgraded to Aa3 (sf)

Cl. D, Affirmed at A1 (sf); previously on Mar 5, 2009 Downgraded to A1 (sf)

Cl. X-1B, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

Cl. X-3A, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

Cl. X-3B, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

Cl. X-3C, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

RATINGS RATIONALE

The upgrades were due to increased credit support from loan pay downs and the improving performance of the the Lord & Taylor Portfolio Loan. The affirmations were due to key parameters, including Moody's loan to value (LTV) ratios remaining within an acceptable range

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Primary sources of assumption uncertainty are the current sluggish macroeconomic environment and performance in the commercial real estate property markets. While commercial real estate property markets are gaining momentum, a consistent upward trend will not be evident until the volume of transactions increases, distressed properties are cleared from the pipeline and job creation rebounds. The hotel and multifamily sectors are continuing to show signs of recovery through the first half of 2011, while recovery in the non-core office and retail sectors are tied to pace of recovery of the broader economy. Core office markets are showing signs of recovery through lending and leasing activity. The availability of debt capital continues to improve with terms returning toward market norms. Moody's central global macroeconomic scenario reflects an overall sluggish recovery as the most likely scenario through 2012, amidst ongoing individual, corporate and governmental deleveraging, persistent unemployment, and government budget considerations, however the downside risks to the outlook have risen since last quarter.

The principal methodology used in this rating was "Moody's Approach to Rating CMBS Large Loan/Single Borrower Transactions" published in July 2000. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's review incorporated the use of the excel-based Large Loan Model v 8.2. 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 review is summarized in a press release dated November 17, 2010. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

DEAL PERFORMANCE

As of the October 7, 2011 Payment Date, the transaction's certificate balance has decreased by 72% to $734.4 million from $2.6 billion at securitization due to the pay off of 11 loans originally in the pool and the partial pay down of the Lord & Taylor Portfolio Loan. The certificates have paid down 46% since last review. Currently the mortgage pool consists of four loans. The Lord & Taylor Portfolio Loan comprises 85% of the pool. The other three loans are secured by hotel properties (13%) and office properties (2.0%).

Currently, one loan is in special servicing, the Royal Holiday Portfolio Loan (9%). The loan is secured by six hotels located in Mexico with a total of 1,501 rooms. Two of the hotels are located in Cancun, and the other four are located in Cozumel, Ixtapa, Acapulco and San Jose del Cabo. The loan was transferred to special servicing in February 2010 and is a non-performing matured loan. The borrower filed a Mexican bankruptcy petition for the Cozumel Caribe Hotel in May 2010. The bankruptcy court terminated the flow of funds into the lender's cash management system. The borrower has not made debt service payments since May 2010, nor has the borrower provided financials for the hotels. Currently $2.4 million in interest advances is outstanding. The servicer is defending and pursuing multiple legal actions and foresees lengthy litigation. Moody's loan to value (LTV) ratio for the loan is in excess of 100%. Moody's current credit estimate is C, unchanged from the previous review.

The pool has experienced a loss of $618 to Class M. As of the October 2011 Remittance Statement, interest shortfalls total $530,308 affecting Classes M and L. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions (ASERs) and extraordinary trust expenses.

Moody's weighted average loan to value (LTV) ratio for the pool is 95%, compared to 78% at last review. Moody's stressed debt service coverage ratio (DSCR) is 1.02X, compared to 1.35X at last review. Moody's stressed DSCR is based on Moody's net cash flow (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. Large loan transactions have a Herf of less than 20. This pool has a Herf of 1, compared to a Herf of 3 at last review and 5 at securitization.

The largest loan in the pool is the Lord & Taylor Portfolio Loan ($621.4 million -- 85% of the pool balance) which provided financing for the acquisition of the Lord & Taylor department store chain from Federated Department Stores. The portfolio consists of 37 cross-collateralized and cross-defaulted properties containing a total of 6.0 million square feet including 36 retail stores and one distribution center. Twenty-two of the properties are owned in fee and 15 are leasehold interests. The properties, which are 100% leased to Lord & Taylor, are located in eight different states and Washington, D.C. Included in the portfolio is Lord & Taylor's New York City flagship store located on Fifth Avenue at 38th Street in an 11-story building containing 676,042 square feet.

In December 2008 the Lord & Taylor borrower advised the mortgage lender that sales had dropped due to the economic recession and a loan modification was negotiated in the first quarter of 2009. Significant terms of the loan modification included the release of reserve funds to prepay a portion of the mortgage loan and $15 million of the mezzanine debt; a $60 million cash infusion from Hudson's Bay Trading Company, LP (the parent company); suspension of mezzanine debt amortization through 1/31/2011; and suspension of deposits into the cash flow reserve account until Earnings Before Interest, Taxes, Depreciation, Amortization and Rent (EBITDAR) exceeds a threshold.

Lord & Taylor operations are stabilizing. Sales during the trailing 12-month period ending July 2011 for the portfolio increased 7% from the previous year to $212 per square foot. Sales at the Fifth Avenue flag-ship store increased 9% to $469 per square foot based on 302,190 square feet of retail space. The outstanding principal balance of the mortgage loan has decreased 21% since securitization as a result of the loan restructuring and amortization. In addition, there is mezzanine debt in the amount of $144 million. The loan matures in June 2012. Moody's LTV is 90% for the pooled balance. Moody's has concerns regarding the future performance of retailers in general, in view of current global economic conditions, and will continue to monitor the performance of the Lord & Taylor Portfolio Loan given its significant share of this transaction. Moody's current credit estimate is B3, unchanged from the previous review.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the 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 did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Jay Rosen
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael M. Gerdes
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Upgrades Two CMBS Classes of MLFT 2006-1
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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