DBRS Confirms 16 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 18; Releases Surveillance Report

DBRS has today confirmed Classes A though L of the Merrill Lynch Financial Assets Inc., Series 2006-Canada 18 transaction, all with a Stable trends. There is one loan in special servicing, TransGlobe Pooled Senior Loan, representing 10.6% of the pool.

This transaction’s primary concern relates to the TransGlobe Pooled Senior Loan (10.6% of the pool) which transferred to special servicing in September 2009, after a technical default was triggered by an unapproved second mortgage on the portfolio. The collateral consists of 28 multifamily properties, with 2,491 apartment units, located throughout Ontario (80.1% of the portfolio) and Nova Scotia (19.9% of the portfolio). The portfolio reported a whole-loan DSCR of 1.20x, as of YE2008. Recourse for the loan is limited to $25 million and despite the technical default, DBRS does not expect the trust to incur any losses from this loan given the A-note leverage, stable performance of the collateral and the loan-specific credit enhancement provided by the subordinate B-note. For further information on this loan, please see the Merill Lynch Financial Assets Inc., Series 2006-Canada 18 Surveillance Report.

Overall, the pool has exhibited stable performance, with the weighted average debt service coverage ratio (WADSCR) increasing to 1.56x (on a whole-loan and P&I basis), from 1.41x, at issuance. Further, the pool’s weighted-average loan-to-value ratio (WALTV) has decreased from 72.1%, at issuance, to 66.7%, after collectively amortizing 8.0%. The transaction benefits from three investment grade shadow-rated loans, representing 5.0% of the current pool balance. These loans are: Preston Crossing – Phase II, rated AA; Bolton Country Shopping Centre, rated BBB; and Brant Plains Plaza, rated BBB (high). DBRS shadow-rates three other loans (3.9% of the pool) BB (low).

Geographically, the pool is diverse, with properties located across nine provinces. Ontario represents the largest geographic concentration (37.7% of the pool). By property type, retail assets lead the transaction at 27.7% of the current pool balance. As of February 2010, the trust balance totals $542,064,167. One loan has paid off and two loans, totaling 3.1% of the pool, are fully defeased. There are 82 loans remaining in the transaction.
While all loans in the pool are current, DBRS has HotListed one loan, 10,500 Cote de Liesse (0.5% of the pool), due to low occupancy and a DSCR below 1.0x. This loan is secured by a 55,000 sf office building in the West Island section of Montreal. The property’s vacancy rate increased to 31.8%, after its largest tenant (27.7% of the NRA) vacated its space in August 2009. The building’s property manager is actively marketing the space.

DBRS removed its BBB shadow-rating of Regency Retirement Residence (2.2% of the pool). The 82-unit independent living centre is located in Mississauga, Ontario, and reported a strong 2.02x DSCR, as of YE2008. However, occupancy at the property has decreased which may negatively impact its DSCR going forward.

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.