DBRS Confirms 16 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 20; Releases Surveillance Report

DBRS has today confirmed Classes A though L of the Merrill Lynch Financial Assets Inc., Series 2006-Canada 20 transaction, all with a Stable trends. There are two loans in special servicing, Marriott Pooled Senior Loan (Marriott) and Summit Properties (Summit). Together, these loans represent 6.3% of the pool.

This transaction’s primary concern relates to the Marriott Pooled Senior Loan (4.8% 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. 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.

Summit (1.5% of the pool) was transferred to special servicing in June 2009, due to imminent default. This loan is secured by a 122-unit multifamily property in Leduc, Alberta. The borrower has experienced difficulties, due to an increase in capital expenditure requirements. However, the borrower is currently working with TD Bank to refinance the property. TD Bank has issued a letter of intent, and the closing is expected to take place by the end of February 2010.

Overall, the weighted average debt service coverage ratio (WADSCR) is 1.54x (on a whole-loan and P&I basis), up from 1.38x, at issuance. In addition, the pool’s weighted-average loan-to-value ratio (WALTV) has decreased from 70.8% at issuance to 67.3%, after collectively amortizing 8.2%. Geographically, the pool is diverse, with properties located across eight provinces. Alberta represents the largest geographic concentration (25.1% of the pool). By property type, office assets lead the transaction at 37.2% of the current pool balance. As of January 2010, the trust balance totals $543,601,256 and two loans have paid off. There are 64 loans remaining in the transaction, all of which are current.

Due to this portfolio’s stable performance there are no loans on the DBRS HotList. In addition, DBRS shadow rates two loans, representing 6.5% of the current pool balance, investment-grade. These loans are: Westview Village Manufactured Home Community, rated BBB; and CLSC Sherbrooke, 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.