S&P: ML-CFC Commercial Mortgage Trust 2007-7 Ratings Raised On Three Classes, Affirmed On Two
Our rating actions follow our analysis of the transaction, primarily using ourcriteria for rating U. S. and Canadian CMBS transactions, which included a review of the credit characteristics and performance of the remaining assets in the pool, the transaction’s structure, and the liquidity available to the trust.
We raised our ratings on classes A-4, A-4FL, and A-1A to reflect our expectation of the available credit enhancement for these classes, which we believe is greater than our most recent estimate of necessary credit enhancement for the respective rating levels. The upgrades also follow our views regarding the current and future performance of the transaction's collateral and reduction in the trust balance.
The affirmations on the class AM and AM-FL certificates reflect our expectation that the available credit enhancement for these classes will be within our estimate of the necessary credit enhancement required for the current ratings. The affirmations also reflect our views regarding the currentand future performance of the transaction’s collateral, as well as refinancingrisk (over 99% of the remaining loan balance mature in late 2016 and the firsthalf of 2017).
As of the Aug. 12, 2016, trustee remittance report, the collateral pool balance was $1.64 billion, which is 58.9% of the pool balance at issuance. Thepool currently includes 222 loans and three real estate owned (REO) assets (reflecting crossed loans), down from 323 loans at issuance. Six of these assets ($34.0 million, 2.1%) are with the special servicer, 24 ($260.1 million, 15.9%) are defeased, and 56 loans ($368.4 million, 22.5%) are on the master servicers’ combined watchlist. The master servicers, Wells Fargo Bank N. A. and Midland Loan Services, reported financial information for 96.5% of the nondefeased loans in the pool, of which 1.1% was partial-year 2016 data, 92.9% was year-end or partial-year 2015 data, and the remainder was partial-oryear-end 2014 data.
We calculated a 1.26x S&P Global Ratings’ weighted average debt service coverage (DSC) and 93.0% S&P Global Ratings’ weighted average loan-to-value (LTV) ratio using a 7.76% S&P Global Ratings’ weighted average capitalization rate. The DSC, LTV, and capitalization rate calculations exclude the speciallyserviced assets, defeased loans, five subordinate B notes ($19.1 million, 1.2%), and one ground lease loan ($8.4 million, 0.5%). The top 10 nondefeased loans have an aggregate outstanding pool trust balance of $379.4 million (23.1%). Using servicer-reported numbers, we calculated an S&P Global Ratings’weighted average DSC and LTV of 1.11x and 112.6%, respectively, for the top 10nondefeased loans.
To date, the transaction has experienced $348.3 million in principal losses, or 12.5% of the original pool trust balance. We expect losses to reach approximately 13.8% of the original pool trust balance in the near term, basedon losses incurred to date and additional losses we expect upon the eventual resolution of the specially serviced assets and the liquidation of the subordinate B notes.
As of the Aug. 12, 2016, trustee remittance report, six assets in the pool were with the special servicer, LNR Partners LLC. Details of the two largest specially serviced assets are as follows:
The 4000 Venture Drive loan ($13.0 million, 0.8%) has a total reported exposure of $13.3 million. The loan, which has a 60-days delinquent payment status, is secured by a retail property totaling 156,263-sq.-ft. in Duluth, Ga. The loan was transferred to the special servicer on June 14, 2016, becauseof imminent default. Per the special servicer’s comments, the largest tenant, the Golf & Pro Tennis Shop, which occupied approximately 63% of the net rentable area, vacated the property upon its lease expiration in May 2016. Thereported DSC as of year-end 2015 was 1.46x, while the current occupancy is approximately 37%. We expect a moderate loss upon this loan’s eventual resolution.
The Silgan Containers loan ($9.2 million, 0.6%) has a total reported exposure of $10.5 million. The loan, which has a 90-plus-days delinquent payment status, is secured by a 187,850-sq.-ft. industrial property in Woodstock, Ill. The loan was transferred to the special servicer on Sept. 8, 2014, due to imminent default. Per the most recent special servicer’s comments, the property is currently 100% vacant. The reported cash flow at the property is not sufficient to cover debt service. An appraisal reduction amount of $7.4 million is in effect against this loan. We expect a significant loss upon thisloan’s eventual resolution.
The four remaining assets with the special servicer each have individual balances that represent less than 0.3% of the total pool trust balance. We estimated losses for the six specially serviced assets, arriving at a weighted-average loss severity of 49.4%. In addition, we also credit impaired the five subordinate B notes because we believe that these components are at heightened risk of default and losses based on our analysis. We estimated 100%losses on each of the five subordinate B notes in the pool.
With respect to the specially serviced assets noted above, a minimal loss is less than 25%, a moderate loss is 26%-59%, and a significant loss is 60% or greater.