DBRS Places Master Asset Vehicle II Class A-2 Notes Under Review with Negative Implications; Other MAV Ratings Unchanged

DBRS has today placed the rating of the Class A-2 Notes (the MAVII A-2 Notes) issued by Master Asset Vehicle II (MAVII) Under Review with Negative Implications. The ratings of the Master Asset Vehicle I (MAVI) Class A-1 Notes and Class A-2 Notes and the MAVII Class A-1 Notes are unaffected by this action.

On January 21, 2009, DBRS assigned ratings of “A” to the MAVI and MAVII Class A-1 Notes and Class A-2 Notes. As stated in the rating reports, DBRS focused on three aspects of the transaction when conducting its rating analysis: (1) legal and structural elements; (2) the probability of the structure facing a margin call that could not be satisfied by available collateral and/or available margin funding facilities; and (3) the credit quality of the underlying asset interests (the Asset Interests). Any one of these elements may act as a ceiling on the ratings of the notes.

In a letter to MAVII investors released on April 16, 2009, BlackRock (Institutional) Canada Ltd. (the Administrator) advised that there would be insufficient funds available to pay any interest accrued on the MAVII A-2 Notes on April 22, 2009, the first payment date to noteholders. DBRS has received and is reviewing additional information from the Administrator regarding the funds received and paid during this period to evaluate the potential ratings impact on the MAVII A-2 Notes. If MAVI or MAVII experiences a sustained interest shortfall, unbudgeted one-time fees or negative carry on investments, subordination available to cover losses suffered by the Asset Interests will be eroded.

In addition to the potential impact of the interest shortfall, the following factors contributed to DBRS placing the rating of the MAVII A-2 Notes Under Review with Negative Implications:

(1) On March 16, 2009, DBRS was advised that MAVII’s credit default swap transactions with Canadian Imperial Bank of Commerce (CIBC) were terminated due to the failure of MAVII to post additional collateral to meet a margin call. The termination resulted in losses of $107,742,597 (or approximately 1.1% of the assets of MAVII). As a result, the enhancement available to the MAVII A-2 Notes has been reduced by 1.1%, whereas the enhancement percentage for the MAVI Class A-2 Notes was unaffected. Please refer to the February 19, 2009, Canadian Structured Finance Newsletter for further information on the different mechanisms and consequences applicable to MAVI and MAVII following the occurrence of the CIBC trigger breach.

(2) A number of the underlying Asset Interests in MAVI and MAVII reference credits that have been downgraded in recent months. Although most collateralized debt obligation (CDO) transactions still require a large number of defaults before suffering first-dollar loss, negative rating migration has increased the probability of default for many credits in the underlying reference pools.

(3) Compared with MAVI, MAVII has a somewhat greater exposure to CDO transactions that have lower levels of credit enhancement.

The cumulative effect of the above factors has resulted in the MAVII A-2 Notes being placed Under Review with Negative Implications. DBRS will review the impact of the interest shortfall, together with other relevant factors, in relation to the amount of enhancement available to the MAVII A-2 Notes. For each of MAVI and MAVII, the Class A-2 Notes act as subordination to the Class A-1 Notes. Accordingly, ratings on the Class A-1 Notes for both MAVI and MAVII remain unchanged at this time.

DBRS continues to actively monitor the credit quality and market risk of the MAVI and MAVII Class A-1 Notes and Class A-2 Notes and will provide further updates as necessary.

Notes:
The applicable methodologies are Rating Canadian Structured Credit Transactions and Canadian Structured Credit Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance rating.