Approximately $382.1 Million of Structured Securities Affected
New York, November 20, 2012 -- Moody's Investors Service (Moody's) affirmed the ratings of 14 classes of Schooner Trust Commercial Mortgage Pass-Through Certificates, Series 2006-5 as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on Feb 28, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on Feb 28, 2006 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aa2 (sf); previously on Feb 28, 2006 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed at A2 (sf); previously on Feb 28, 2006 Definitive Rating Assigned A2 (sf)
Cl. D, Affirmed at Baa2 (sf); previously on Feb 28, 2006 Definitive Rating Assigned Baa2 (sf)
Cl. E, Affirmed at Baa3 (sf); previously on Feb 28, 2006 Definitive Rating Assigned Baa3 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on Feb 28, 2006 Definitive Rating Assigned Ba1 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Feb 28, 2006 Definitive Rating Assigned Ba2 (sf)
Cl. H, Affirmed at Ba3 (sf); previously on Feb 28, 2006 Definitive Rating Assigned Ba3 (sf)
Cl. J, Affirmed at B1 (sf); previously on Feb 28, 2006 Definitive Rating Assigned B1 (sf)
Cl. K, Affirmed at B2 (sf); previously on Feb 28, 2006 Definitive Rating Assigned B2 (sf)
Cl. L, Affirmed at B3 (sf); previously on Feb 28, 2006 Definitive Rating Assigned B3 (sf)
Cl. XP, Affirmed at Aaa (sf); previously on Feb 28, 2006 Definitive Rating Assigned Aaa (sf)
Cl. XC, Affirmed at Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)
The affirmations of the principal classes 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. The rating of the IO Classes, X-P and X-C, are consistent with the credit performance of their referenced classes and thus are affirmed.
Moody's rating action reflects a base expected loss of 2.0% of the current balance compared to 1.9% at last review. Moody's provides a current list of base expected 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.
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 extent of growth in the current macroeconomic environment and commercial real estate property markets. Commercial real estate property values are continuing to move in a positive direction along with a rise in investment activity and stabilization in core property type performance. Limited new construction and moderate job growth have aided this improvement. However, a consistent upward trend will not be evident until the volume of investment activity steadily increases for a significant period, non-performing properties are cleared from the pipeline, and fears of a Euro area recession are abated.
The hotel sector is performing strongly with eight straight quarters of growth and the multifamily sector continues to show increases in demand with a growing renter base and declining home ownership. Slow recovery in the office sector continues with minimal additions to supply. However, office demand is closely tied to employment, where growth remains slow and employers are considering decreases in the leased space per employee. Also, primary urban markets are outperforming secondary suburban markets. Performance in the retail sector continues to be mixed with retail rents declining for the past four years, weak demand for new space and lackluster sales driven by discounting and promotions. However, rising wages and reduced unemployment, along with increased consumer confidence, is helping to spur consumer spending resulting in increased sales. Across all property sectors, the availability of debt capital continues to improve with robust securitization activity of commercial real estate loans supported by a monetary policy of low interest rates.
Moody's central global macroeconomic scenario maintains its forecast of relatively robust growth in the US and an expectation of a mild recession in the euro area for 2012. Downside risks remain significant, and elevated downside risks and their materialization could pose a serious threat to the outlook. Major downside risks include: a deeper than expected recession in the euro area; the potential for a hard landing in major emerging markets; an oil supply shock; and material fiscal tightening in the US given recent political gridlock. Healthy but below-trend growth in GDP is expected through the rest of this year and next with risks trending to the downside.
The methodologies used in this rating were "Moody's Approach to Rating Fusion U.S. CMBS Transactions" published in April 2005, "Moody's Approach to Rating Canadian CMBS" published in May 2000 and "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.61 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 (sf) 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 (sf) 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 (sf) and B2 (sf), 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 assessments is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the credit assessment 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 assessment level, is incorporated for loans with similar credit assessment in the same transaction.
Moody's review also incorporated the CMBS IO calculator ver1.1 which uses the following inputs to calculate the proposed IO rating based on the published methodology: original and current bond ratings and credit estimates; original and current bond balances grossed up for losses for all bonds the IO(s) reference(s) within the transaction; and IO type corresponding to an IO type as defined in the published methodology. The calculator then returns a calculated IO rating based on both a target and mid-point . For example, a target rating basis for a Baa3 (sf) rating is a 610 rating factor. The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e. the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf) rating factor of 940). If the calculated IO rating factor is 700, the CMBS IO calculator ver1.1 would provide both a Baa3 (sf) and Ba1 (sf) IO indication for consideration by the rating committee.
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 38, the same as 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 a review utilizing MOST® (Moody's Surveillance Trends) Reports and a proprietary program that highlights significant credit changes that have occurred in the last month as well as cumulative changes since the last full transaction review. On a periodic basis, Moody's also performs a full transaction review that involves a rating committee and a press release. Moody's prior transaction review is summarized in a press release dated December 1, 2011. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.
As of the November 13th, 2012 distribution date, the transaction's aggregate certificate balance has decreased by 20% to $387.6.1million from $486.1 million at securitization. The Certificates are collateralized by 78 mortgage loans ranging in size from less than 1% to 7% of the pool, with the top ten loans representing 38% of the pool. There are two loans with investment-grade credit assessments, representing approximately 10% of the pool. There are five defeased loans, representing 18% of the pool, that are secured by Canadian Government securities.
Six loans are on the master servicer's watchlist, representing approximately 8% of the pool. 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 experienced any losses to date and there are no loans currently in special servicing.
Moody's has assumed a high default probability for three poorly performing loans representing approximately 3% of the pool and has estimated a $2.1 million loss (20% expected loss based on a 50% probability default) from these troubled loan.
Excluding defeased and troubled loans, Moody's was provided with full year 2011 operating results for 89% of the pool. Excluding defeased and troubled loans, Moody's weighted average conduit LTV is 76% compared to 79% at Moody's prior. Moody's net cash flow (NCF) reflects a weighted average haircut of 11.5% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.2%.
Excluding defeased and troubled loans, Moody's actual and stressed conduit DSCRs are 1.52X and 1.39X, essentially the same as at last review. Moody's actual DSCR is based on Moody's net cash flow 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 assessment is the Briton House Loan ($26.0 million -- 6.7% of the pool), which is secured by a 220-unit retirement home located in Toronto, Ontario. As of April 2011, the property was 100% leased compared to 98% at last review. Performance has been stable and the loan is benefitting from amortization. Moody's current credit assessment and stressed DSCR are Baa2 and 1.52X, essentially the same as at last review.
The second loan with a credit assessment is the Greenwood Beach Retail Centre loan ($11.9 million -- 2.9% of the pool), which is secured by three retail properties totaling 105,148 square feet and located in Toronto, Ontario. Major tenants include Ontario Jockey Club, Alliance Atlantis (movie theater), Beach Fitness Centre and Bank of Montreal. As of August 2011, the complex was 93% leased compared to 95% at last review. The loan is amortizing on a 20-year schedule and is 100% recourse to the borrower. The sponsor is EMM Financial Corp. Moody's current credit assessment and stressed DSCR are A3 and 1.72X, essentially the same as at last review.
The top three performing conduit loans represent 13% of the pool balance. The largest loan is the Lindsay Square loan ($17.9 million -- 4.6% of the pool), which is secured by 193,933 square foot anchored retail mall located in Lindsay, Ontario. As of March 2012, the property was 97% leased compared to 94% at last review. The loan is benefiting from amortization and is partial recourse to the borrower. The sponsor is the Montez Retail Fund. Moody's LTV and stressed DSCR are 89% and 1.1X, respectively, compared to 93% and 1.05X at last review.
The second largest loan is the 380 & 400 Waterloo Avenue loan ($16.6 million -- 4.3% of the pool), which is secured by 262-unit multifamily property located in Guelph, Ontario. As of September 2011, the property was 100% leased compared to 98% at last review. However, the loan is on the watch list for deferred maintenance issues. Per the master servicer, the borrower is in the process of remedying the issues. The loan is benefiting from amortization and is 100% recourse. The sponsor is Homestead Land Holdings. Moody's LTV and stressed DSCR are 85% and 0.99X, respectively, compared to 89% and 0.94X, respectively at last review.
The third largest loan is the Springdale Square loan ($15.5 million -- 3.8% of the pool), which is secured by a 105,453 square foot anchored retail property located in Brampton, Ontario. As of March 2012, the property was 92% leased compared to 100% at last review. The loan is benefiting from amortization and is 100% recourse. The sponsor is Heritage Court Holdings. Moody's LTV and stressed DSCR are 94% and 1.01X, respectively, compared to 90% and 1.06X at last review.
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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.
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Juan Acosta Analyst Structured Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Sandra Ruffin VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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