TEXT-S&P takes various rating actions on MF2 senior loan ABLs

Wed Nov 28, 2012 3:02am EST

Nov 28 -

OVERVIEW

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

-- We consider the recovery prospects from the properties backing the transaction's nonrecourse loan to be under downward pressure, given the status of the sales of these properties. In addition, the transaction's legal final maturity date is drawing closer.

-- We have lowered our ratings on the class A3 and A4 MF2 senior ABLs and placed the ratings on the class A1 and A2 ABLs on CreditWatch negative.

Standard & Poor's Ratings Services today said that it has lowered its ratings on the class A3 and A4 senior asset-backed loans (ABLs) issued under the MF2 Senior Loan transaction and placed the ratings on the class A1 and A2 ABLs on CreditWatch with negative implications (see list below).

We today lowered our ratings on the class A3 and A4 ABLs to reflect our view that the recovery prospects from the three properties backing the transaction's nonrecourse loan are under downward pressure, given the status of the sales of these properties. Three office buildings in Tokyo back the nonrecourse loan, which defaulted in March 2012.

Meanwhile, we today placed our ratings on the class A1 and A2 ABLs on CreditWatch negative, because the cash flows from some of the properties backing the transaction's nonrecourse loan are lower than the assumptions we made when we last reviewed our ratings in October 2011. We therefore see a possibility that the likely collection amounts from these properties could be under additional downward pressure. In addition, regarding the class A1 ABL, we also believe that the likelihood of the recovery of this class by the transaction's legal final maturity date in March 2014 is falling close to a level that is no longer commensurate with the current rating, given the limited amount of time remaining until that date.

We intend to review our ratings on the class A1 and A2 ABLs after considering the results of our review of the likely recovery amount from the properties backing the transaction's nonrecourse loan, and the progress in the sales of these properties.

In this commercial mortgage-backed securities (CMBS) transaction, we assigned our ratings to the JPY25.4 billion class A1 to A4 senior ABLs extended to Godo Kaisha MF2 (MF2). A nonrecourse loan that MF2, serving as the lending special-purpose company (SPC), extended to another company backs the ABLs. Apart from the class A1 to A4 ABLs, MF2 also has a mezzanine loan, the initial amount of which was JPY7 billion. Morgan Stanley Japan Securities Co. Ltd. arranged this transaction, and ORIX Asset Management & Loan Services Corp. acts as the servicer.

The ratings reflect our opinion on the likelihood of the full and timely payment of interest and the ultimate repayment of principal by the transaction's legal final maturity date in March 2014 for the class A1 ABL and the full payment of interest and ultimate repayment of principal by the legal final maturity date for the class A2 to A4 ABLs.

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

RATINGS LOWERED

MF2 Senior Loan

JPY25.4 billion senior ABLs due March 2014

Class To From Initial issue amount

A3 ABL B- (sf) B (sf) JPY1.4 bil.

A4 ABL CCC (sf) B- (sf) JPY1.0 bil.

RATINGS PLACED ON CREDITWATCH NEGATIVE

MF2 Senior Loan

Class To From Initial issue amount

A1 ABL AA- (sf)/Watch Neg AA- (sf) JPY19.0 bil.

A2 ABL BB (sf)/Watch Neg BB (sf) JPY4.0 bil.

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