Moody's Assigns Provisional A2(sf) Rating to Bay Wellington Tower Senior Secured Mortgage Bonds
Toronto, November 21, 2012 -- Moody's Investors Service has assigned provisional ratings to a single class of senior secured bonds issued by BP LP.
BP LP is an Ontario limited partnership whose sole limited partner is, and whose general partner is owned by, the transactions Sponsor, Brookfield Office Properties Canada LP, which is a subsidiary of Brookfield Canada Office Properties (BCOP). BCOP is a publically traded Canadian real estate investment trust. Brookfield Asset Management (BAM), the ultimate parent company of BCOP, currently has a Moody's senior unsecured rating of Baa2.
Senior Secured Bond, Assigned (P)A2 (sf)
The Bonds are collateralized by a single loan backed by a first lien commercial mortgage related to a class A office property including the 1.30 million SF, 47-storey Bay Wellington Tower as well as specific economic interests in the retail and parking facilities of the complex commonly known as Brookfield Place, Toronto, Canada. The Issuer, its general partner and its nominees are structured as bankruptcy remote, special purpose entities (SPE's) whose sole business is the ownership and operation of the mortgaged property.
BP LP is the sole beneficial owner of the freehold interest in Bay Wellington Tower lands and all the improvements, a 100% economic interest in 43,356 SF ground floor / street level retail space, a 50% interest in the net revenue from the Retail Concourse operations, and a 56% interest in the net revenue generated by the Parking Facility. The loan is secured by all four components collectively.
The rating is based on the collateral and the structure of the transaction.
Moody's rating approach for securities backed by a single loan compares the credit risk inherent in the underlying property with the credit protection offered by the structure. The structure's credit enhancement is quantified by the maximum deterioration in property value that the securities are able to withstand under various stress scenarios without causing an increase in the expected loss for various rating levels. In assigning single borrower ratings, Moody's also considers a range of qualitative issues as well as the transaction's structural and legal aspects.
The credit risk of the loan is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by the DSCR, and 2) Moody's assessment of the severity of loss in the event of default, which is largely driven by the LTV of the underlying loan.
Moody's LTV Ratio of 76.2% is higher than other fixed-rate loans that have previously been assigned an underlying rating of A2. Based on Moody's assessment of in-place cash flow, Moody's Actual DSCR is 1.82X and Moody's Stressed DSCR is 1.06X. Moody's DSCR's are in-line with other Moody's rated loans of similar respective leverage.
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.
The V Score for this transaction is assessed as Medium. This reflects typical volatility with respect to the critical assumptions used in the rating process including (i) average disclosure of securitization collateral and ongoing performance, (ii) the Canadian markets strong historical performance and low historical downgrade rate, and (iii) the fairly limited lender approval rights and oversight of the Issuer relative to more traditional CMBS transactions.
Moody's V Scores provide a relative assessment of the quality of available credit information and the potential variability around the various inputs to a rating determination. The V Score ranks transactions by the potential for significant rating changes owing to uncertainty around the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, the modeling and the transaction governance that underlie the ratings. V Scores apply to the entire transaction (rather than individual tranches).
Moody's Parameter Sensitivities: If Moody's value of the collateral used in determining the initial rating were decreased by 5%, 16%, or 25%, the model-indicated rating for the currently rated A2 Bonds would be Baa1, Ba1, or B2, respectively. Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time; rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.
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