DBRS Confirms 17 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 19

DBRS has today confirmed Classes A though L of the Merrill Lynch Financial Assets Inc., Series 2006-Canada 19 transaction. The trends remain Stable for Classes A-1 through H while Classes J, K and L have been assigned Negative trends following performance deterioration in three of the top ten loans: Marriott Pooled Senior Loan, 8100 Granville and Castel Royale. Together, these loans represent 12.6% of the portfolio.

The transaction’s primary concern is the Marriott Pooled Senior Loan (4.7% of the pool) which transferred to special servicing in August 2009 after the borrower requested a loan modification. A portfolio of five full-service hotels throughout the Greater Toronto Area (GTA) serve as collateral and as of June 2009, the properties reported a 16% decrease in revenue from YE2008. The $51.8 million senior loan secured by the portfolio consists of two pari passu notes (A-1 and A-2) along with a subordinate, non-securitized B-note ($23 million, interest-only). The loan was recently declared to be in monetary default, giving the B-note holder the option to purchase the senior A-notes within 60 days, in accordance with the Co-Lender Agreement. The A-notes remain current as the borrower is remitting net cash flow from the properties to the special servicer and the parties continue to explore possible resolution options.

Despite the decline in performance at the properties, leverage remains reasonable on an A-note basis (approximately $81,900 per key) and several recent broker opinions of value (BOVs) estimated the as-is value of the portfolio below the DBRS UW estimate at issuance. As a result, DBRS does not anticipate a loss to the trust, as any losses would first be absorbed by the outstanding B-note. Given the loan’s special servicing status and recent decline in performance, DBRS has removed the shadow-rating on the non-recourse loan.

Overall, the weighted-average debt service coverage ratio (WADSCR) is 1.39x (on a whole-loan and P&I basis), which is inline with issuance (1.38x). In addition, the pool’s weighted-average loan-to-value ratio (WALTV) has decreased from 72.2% at issuance to 67.7%, after collectively amortizing 6.4%. Geographically, the pool is diverse, with properties located across eight provinces. Ontario represents the largest geographic concentration (37.5% of the pool). By property type, retail assets lead the transaction at 34.0% of the current pool balance. As of January 2010, the trust balance totals $546,592,987 and all 75 loans in the transaction are current.

The DBRS HotList has increased to seven loans (13.5% of the pool) that are of concern primarily due to lease rollover risk, low occupancy, and low DSCR. In addition, DBRS shadow-rates two loans, representing 3.3% of the current pool balance, investment-grade. These loans are: Wal-Mart Collingwood, rated AA; and Winnipeg Health loan, rated A (high).

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

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance CMBS rating.