TEXT-S&P lowers rating on MF2 Alpha CMBS to 'CCC- (sf)'

Wed Nov 28, 2012 2:59am EST

Nov 28 -

OVERVIEW

-- MF2 Alpha is a CMBS transaction that Morgan Stanley Japan Securities arranged.

-- We consider the recovery prospect from the properties backing the transaction's nonrecourse loan to be under downward pressure, given the status of the sales of these properties.

-- We have lowered to 'CCC- (sf)' from 'CCC (sf)' our rating on MF2 Alpha's series 1 unsecured bonds.

Standard & Poor's Ratings Services today said that it has lowered to 'CCC- (sf)' from 'CCC (sf)' its rating on the JPY7.0 billion series 1 unsecured bonds issued under the Godo Kaisha MF2 Alpha (MF2 Alpha) transaction in September 2008 (see list below).

The nonrecourse loan, which secures the class B asset-backed loan (ABL), defaulted on its maturity date in March 2012. In line with collection method stipulated in the transaction documents, sales activities for the three office buildings in Tokyo that back the nonrecourse loan have begun but none of them have yet been sold. We today lowered our ratings on the series 1 unsecured bonds to reflect our view that the recovery prospect from the properties backing the transaction's nonrecourse loan is under downward pressure, given the status of the sales of these properties.

In the MF2 Alpha transaction, we assigned our ratings to the JPY7.0 billion unsecured bonds that MF2 Alpha issued. A JPY7.0 billion ABL (class B ABL; mezzanine loan) extended to Godo Kaisha MF2 (MF2) backs the bonds. The class B ABL that backs the bonds is, in turn, backed by a nonrecourse loan. Four properties initially secured this nonrecourse loan, which MF2, serving as the lending special-purpose company (SPC), extended to another company. The nonrecourse loan backs not only MF2 Alpha's class B ABL, but also the class A1 to A4 senior ABLs (initial issue amount: JPY25.4 billion) issued under the MF2 Senior Loan transaction.

Morgan Stanley Japan Securities Co. Ltd. arranged this commercial mortgage-backed securities (CMBS) transaction. The rating reflects our opinion on the likelihood of the full payment of interest and the ultimate repayment of principal by the transaction's legal final maturity date in April 2014 for the unsecured bonds.

RELATED CRITERIA AND RESEARCH

"CMBS Global Property Evaluation Methodology," Sept. 5, 2012

"Japanese Structured Finance Scenario And Sensitivity Analysis: The Effects Of

Major Macroeconomic Factors," April 6, 2012

"Methodology For Japanese CMBS Loan Analysis," March 12, 2007

RATING LOWERED

Godo Kaisha MF2 Alpha

JPY7.0 billion unsecured bonds due April 2014

To From Initial issue amount

CCC- (sf) CCC (sf) JPY7.0 bil.

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