DBRS Upgrades Class B and Releases Surveillance Report for Schooner 2006-5

DBRS has today upgraded Class B to AA (high) and confirmed the remaining classes of Schooner Trust Commercial Mortgage Pass-Through Certificates, Series 2006-5. All trends are Stable.

The upgrade reflects the positive outlook for the transaction, following significant collateral reduction and three loans (5.1% of the pool) being collateralized by Government of Canada securities. After approximately 48 months of seasoning, all 91 loans remain in the pool and have collectively amortized 8.8% since issuance. In addition, two top ten loans loans, Springdale Square and Greenwood Beach Retail Centre (combined 6.6%) are shadow-rated at BBB (low) and BBB, respectively. DBRS shadow rates five additional loans in the pool, representing 3.4% of the current pool balance. While the majority of the underlying properties have been able to address the challenges brought on by a difficult economic environment, DBRS applied significant cash flow stresses to account for potential future declines in performance when modeling this transaction. However, given the amortization schedules and performance of the underlying loans to date, DBRS expects the transaction to maintain stable performance.

The pool is well diversified by property type with retail and office properties representing 28.0% and 22.8% of the pool, respectively. Geographically, the transaction is concentrated in the province of Ontario (61.1%), however, this risk is mitigated by the fact that 63.3% of these properties are located in urban markets. The weighted-average debt service coverage ratio (WADSCR) is strong at 1.58x (on a P&I basis) and while this figure may decrease as more loans report 2009 financials, the WADSCR should remain above the issuance level of 1.46x.

There are no delinquent or specially serviced loans in this pool but one loan has been HotListed by DBRS. That loan, 675 Yonge Street (0.5%) is secured by a 23,482 sf, four storey mixed-use property in downtown Toronto and was added to the HotList for a low occupancy rate of 35.4%. The largest tenant (68.6% of the NRA) was evicted in 2008 for non-payment of rent and this space has since been converted to office space that is currently being marketed for lease. The loan amortizes on a 20-year schedule and combined with the recent improvements invested by the borrower, DBRS believes the loan’s default risk is minimal.

DBRS has removed the shadow rating of 6405 Sherbrooke Street (0.8%). The loan was originally shadow rated based on the DBRS rating of Shoppers Drug Mart (who remains in occupancy as the property’s largest tenant) but the loan’s DSCR has declined to 1.06x, as of T-12 2009, after occupancy dropped to 75%. Additionally, moderate deferred maintenance was noted in a June 2009 servicer site inspection and the borrower is considering converting a portion of the property into a long term care facility.

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 rating.