DBRS Confirms Ratings on Xceed Mortgage Trust, Series 2006-T1

DBRS has today confirmed the ratings on the Series 2006-T1 Notes (the Notes, as outlined below) issued by Xceed Mortgage Trust.

The Notes have been confirmed, based on the following factors, as the Class A-2 Notes were not fully repaid on their Targeted Principal Distribution Date (which is today) and, consequently, the amortization period contemplated in the transaction documentation has commenced.

(1) The ratings assigned by DBRS reflect the creditworthiness of the underlying assets and address the likelihood that noteholders will receive timely repayment of principal and interest on or prior to the Final Distribution Date of February 17, 2012, not on the respective Targeted Principal Distribution Dates of the Notes. Failure to pay any class of Notes on its Targeted Principal Distribution Date is not a Related Event of Possession in respect of the Notes and only results in the beginning of an amortization period (see Point (2) below).

(2) During each month of the amortization period, the principal amount collected from the underlying mortgages will be used to pay down the Class A-2 Notes monthly until the outstanding balance is reduced to zero, or until the Final Distribution Date. The subordinated Notes will not receive any principal repayment until the Class A-2 Notes have been fully repaid, after which the subordinated Notes will be repaid sequentially. Since closing on May 1, 2006, approximately 82% of the loan balance has been repaid, indicating an estimated prepayment rate of more than 40% per year. In the unlikely scenario whereby no further prepayments were to be received, the mortgage borrowers are still obligated to repay the outstanding loan balance at the end of the mortgage term (balloon payment), according to the terms of the mortgages. There is no assurance that borrowers will be successful in obtaining a new mortgage to repay the balloon payment; however, it is viewed as unlikely that a borrower who has been making mortgage payments for five years without default would not be able to obtain a new mortgage when refinancing is required (albeit possibly at a higher mortgage rate). In addition, DBRS’s modelling assumption has taken such refinancing risk of balloon payment into consideration when assessing the required credit enhancement at closing.

(3) The underlying collateral continues to be a diversified pool of first-lien mortgages for primarily single-family properties located across Canada. Although the mortgage pool has paid down approximately 82% since closing, there has been no deterioration in the key credit characteristics of the pool. For instance, the mortgage yield, credit score and property ownership and property type have generally remained unchanged. Therefore, the remaining mortgage pool is expected to continue to perform close to historical experience and generate sufficient yield to pay the monthly interest on the Notes and other expenses. In addition, any excess spread will no longer be released back to the originator during the amortization period but will instead be accumulated in the cash account for the benefit of the noteholders.

(4) Since closing, the levels of structural enhancement for each rating class have increased as a result of the repayment of the Class A-1 and A-C Notes and the non-amortizing nature of the subordinate Notes. As of today, in addition to excess spread, 70.9% enhancement is available to the Class A-2 Notes, 47.3% to Class B, 30.2% to Class C and 10.5% to Class D, increased from 13.5%, 9.0%, 5.75% and 2.0% at closing, respectively. The enhancement will continue to increase as the remaining Class A-2 Notes are paid down monthly, and, as discussed in Point (3) above, the accumulation of all excess spread in the cash account will also increase the credit enhancement available.

(5) Should a loss on the Notes occur, it will happen in a reverse sequential order and begin with the lowest-rated Notes, namely, Class D. The Class D Notes will not be fully repaid if the cumulative loss for the Notes were greater than the credit enhancement available after all excess spread has been depleted. As of February 28, 2009, the underlying mortgage collateral incurred low cumulative losses of 0.23% (or $1.24 million), a small fraction of the credit enhancement available for the Class D Notes ($10.5 million in the form of cash). Absent a catastrophic economic change or precipitous market downturn, the cumulative loss over the remaining life of the transaction is not expected to be higher than the available credit protection, nor is it expected to result in a loss to the noteholders of any rated class of the Notes.

Xceed Mortgage Corporation, the originator, has been providing alternative mortgage financing for non-traditional market segments in Canada since 1997. As of January 31, 2009, it had $2.1 billion in mortgages under administration.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Canadian RMBS Methodology, which can be found on our website under Methodologies.

This is a Structured Finance rating.

MEDIA CONTACT

Caroline Creighton
Senior Vice President
Communications
+1 416 597 7317
ccreighton@dbrs.com