DBRS Downgrades Six Classes of ML-CFC Commercial Mortgage Trust, Series 2006-1, Releases Performance Update Report

DBRS has today downgraded the ratings of six classes of ML-CFC Commercial Mortgage Trust, Series 2006-1 as follows:

• Class J to BB from BB (high)
• Class K to BB (low) from BB
• Class L to B (high) from BB (low)
• Class M to B from B (high)
• Class N to CCC from B
• Class P to CCC from B (low)

The changes primarily reflect an increase in the number of delinquent loans and the potential losses that may result since DBRS’s last review. While these estimated losses are expected to be contained to the unrated Class Q, the resulting credit enhancement levels were not sufficient to confirm all ratings within the transaction. Credit enhancement was sufficient to confirm the A Classes and Classes B through H. All trends of the transaction are Stable.

Since its last review, the number of delinquent loans has increased from one 30-day delinquent loan (0.1% of the pool) to six delinquent or specially serviced loans, totaling 1.8% of the pool. These six loans are collateralized by three multi-family complexes, two office properties and one retail center and have all reported significant declines in performance. Of the five loans in special servicing (1.7% of the pool), only one loan, New City Office (0.5% of the pool), is current. The special servicer is currently evaluating resolution options and DBRS has estimated potential losses for these loans, which can be found within the performance update report.

DBRS also increased its HotList to a total of ten loans, or 5.2% of the transaction. The two largest of these loans, Inglewood Park and Colonial Mall Glynn Place (combined 3.1% of the transaction), were previously HotListed and have continued to experience occupancy-related issues; however, both loans remain current. DBRS will continue to monitor the transaction’s delinquent, specially serviced and HotListed loans closely through its “Monthly CMBS Surveillance Report.”

The majority of the remaining loans in the transaction have maintained stable performance since issuance, reporting a weighted-average debt service coverage ratio (WADSCR) of 1.60 times (x) (on a whole-loan and P&I basis). There has been little change in the pool’s underlying collateral since issuance as 148 of the original 152 loans remain after four small loans (0.4% of the pool balance at issuance) prepaid from the pool. The deal is concentrated, with its ten largest loans accounting for 46.2% of the pool. It also has a high concentration in retail properties, which represent 38.4% of the current pool balance. The retail concentration, however, is diversified by type, including regional malls and anchored and unanchored shopping centers. As of April 2009, the transaction has a total balance of $2,094,775,873, representing a cumulative collateral reduction of 2.2% since issuance.

The transaction also benefits from having three shadow-rated investment-grade loans (totaling 13.5% of the pool). These shadow ratings are associated with the A-Note piece(s) of Kenwood Towne Centre (Kenwood, 6.7% of the current pool balance), rated AAA; 60 State Street (6.2% of the current pool balance), rated AAA; and Southern California Ground Lease Portfolio (0.6% of the pool), rated “A”. The Kenwood loan is jointly owned by Teacher's Retirement System of the State of Illinois and a General Growth Properties (GGP) related special-purpose entity (SPE). GGP has recently filed for bankruptcy protection after having difficulties with financing its maturing debt. The loan’s shadow rating continues to be supported by the performance of the asset and credit enhancement provided by the subordinate B-Note. However, if the loan is ultimately transferred to special servicing as a result of the bankruptcy, the transaction will be subject to a loss from a potential 1% special servicing fee and additional expenses. DBRS will continue to monitor the events following GGP’s filing.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance rating.