Approximately $776.6 Million of Structured Securities Affected
New York, March 09, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes
and affirmed 12 classes of Merrill Lynch Mortgage Trust, Commercial
Mortgage Pass-Through Certificates, Series 2002-MW1
as follows:
Cl. A-4, Affirmed at Aaa (sf); previously on
Jul 11, 2002 Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Jan 25,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Dec 8,
2006 Upgraded to Aaa (sf)
Cl. D, Upgraded to Aaa (sf); previously on Aug 9,
2007 Upgraded to Aa1 (sf)
Cl. E, Upgraded to Aa1 (sf); previously on Aug 9,
2007 Upgraded to Aa2 (sf)
Cl. F, Affirmed at A3 (sf); previously on Aug 9,
2007 Upgraded to A3 (sf)
Cl. G, Affirmed at Baa2 (sf); previously on Aug 9,
2007 Upgraded to Baa2 (sf)
Cl. H, Affirmed at Ba1 (sf); previously on Apr 3,
2006 Confirmed at Ba1 (sf)
Cl. J, Affirmed at Ba2 (sf); previously on Apr 3,
2006 Confirmed at Ba2 (sf)
Cl. K, Affirmed at B3 (sf); previously on May 21,
2009 Downgraded to B3 (sf)
Cl. L, Affirmed at Caa2 (sf); previously on May 21,
2009 Downgraded to Caa2 (sf)
Cl. M, Affirmed at Ca (sf); previously on May 21,
2009 Downgraded to Ca (sf)
Cl. N, Affirmed at Ca (sf); previously on May 21,
2009 Downgraded to Ca (sf)
Cl. XC, Affirmed at Aaa (sf); previously on Jul 11,
2002 Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
The upgrades are due to increased credit subordination due to loan payoffs
and amortization and improved pool performance.
The affirmations are due to key parameters, including Moody's
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
3.2% of the current balance. At last review,
Moody's cumulative base expected loss was 4.4%.
Moody's stressed scenario loss is 9.0% 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 sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011 The hotel and multifamily sectors are continuing to show
signs of recovery, while recovery in the office and retail sectors
will be tied to recovery of the broader economy. 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 through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodology used in this rating was "Moody's Approach
to Rating Fusion Transactions" published in April 2005.
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 credit estimate 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 credit estimate 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 28
compared to 32 at Moody's prior 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 May 21, 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 14, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 28% to $778.7
million from $1.1 billion at securitization. The
Certificates are collateralized by 82 mortgage loans ranging in size from
less than 1% to 8% of the pool, with the top ten loans
representing 35% of the pool. The pool includes two loans
with investment-grade credit estimates, representing 17%
of the pool. Twenty-eight loans, representing 37%
of the pool, have defeased and are collateralized with U.S.
Government securities.
Seventeen loans, representing 17% 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.
Five loans have been liquidated from the pool, resulting in an aggregate
$14.1 million loss (33% loss severity on average).
There are currently two loans, representing 1.0% of
the pool, in special servicing. The master servicer has recognized
a $1.2 million appraisal reduction for one of the specially
serviced loans. Moody's estimated a $2.4 million
loss (31% expected loss based on 100% probability of default)
for these loans.
Moody's has assumed a high default probability for four poorly performing
loans, representing 2% of the pool, and has estimated
an aggregate $2.7 million loss (16% expected loss
based on a 62% probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 99%
of the pool. Excluding troubled loans, Moody's weighted
average LTV is 89% compared to 91% at Moody's prior
review. Moody's net cash flow reflects a weighted average
haircut of 6.3% to the most recently available net operating
income. Moody's value reflects a weighted average capitalization
rate of 9.3%.
Excluding troubled loans, Moody's actual and stressed DSCRs
are 1.31X and 1.32X, respectively, compared
to 1.28X and 1.24X 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 largest loan with a credit estimate is the Burbank Empire Center Loan
($58.8 million -- 7.5% of the pool),
which is secured by a 432,000 square foot (SF) power center and
181,393 SF of ground leased improvements located in Burbank,
California. Major tenants include Target (24% of the net
rentable area (NRA); lease expiration 1/1/2027) and Lowe's
(22% of the NRA; lease expiration 10/1/2026). The property
was 100% leased in January 2011 compared to 90% at last
review. Moody's analysis incorporated concerns over near
term tenancy risk, as leases accounting for nearly a third of the
property's base rent expire in the next eighteen months, which
offset the potential benefit from improved occupancy. Moody's current
credit estimate and stressed DSCR are Baa2 and 1.52X, respectively,
compared to Baa2 and 1.56X at last review.
The second loan with a credit estimate is the U-Haul Portfolio
Loan ($55.2 million -- 7.1% of the pool),
which is collateralized by 57 U-Haul self-storage facilities
located across 27 states and 56 cities. Approximately 20%
of the units have climate control. The loan matures in April 2012.
Property performance declined in 2009 due to a 6% drop in revenue
but was offset by loan amortization. Moody's current credit estimate
and stressed DSCR are A3 and 1.97X, respectively, compared
to A3 and 1.84X at last review.
The top three performing conduit loans represent 9% of the pool
balance. The largest loan is the Seven Mile Crossing Loan ($32.4
million -- 4.2% of the pool) which is secured by a
ground lease for three class A office buildings with 346,265 SF
located in Livonia, Michigan. The loan is on the master servicer's
watchlist. Since 2008, the property has been less than 70%
leased and has not generated enough cash flow to cover debt service.
However, the borrower continues to make payments and the loan is
current. The loan matures in April 2012. Moody's LTV and
stressed DSCR are 172% and 0.66X, respectively,
compared to 143% and 0.79X at last review.
The second largest loan is the Keystone Technology VII, VII &
IX Loan ($20.7 million -- 2.7% of the
pool), which is secured by an office and R&D complex located
in Durham, North Carolina. The loan is on the master servicer's
watchlist. The property is currently 92% leased, an
increase from 63% at last review. A new tenant leased 95,000
SF of space in February 2010 and began paying rent at the end of the year.
Moody's LTV and stressed DSCR are 105% and 1.06X,
respectively, compared to 122% and 0.91X at last review.
The third largest loan is the Mayfair Shopping Center Loan ($20.3
million -- 2.6% of the pool), which is secured
by a retail center located in Commack, NY. Major tenants
include Waldbaums (28% of the NRA; lease expiration 10/31/2020)
and Burlington Coat Factory (14% of the NRA; lease expiration
on 1/31/2015). The property was 98% leased in September
2010, the same as at last review. Property performance has
been stable. Moody's analysis at last review incorporated
a stressed cash flow to reflect a negative outlook for the retail sector
and commercial real estate in general. Moody's LTV and stressed
DSCR are 60% and 1.77X, respectively, compared
to 70% and 1.52X 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
Andrew Florio
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Keith Banhazl
Vice President - Senior Analyst
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 Two and Affirms 12 CMBS Classes of MLMT 2002-MW1
