DBRS Upgrades 4 Classes and Confirms 5 Others of Merrill Lynch Financial Assets, Inc., Series 2002 – Canada 7; Releases Surveillance Report

DBRS has today upgraded Classes C, D, E, F and G, and confirmed the remaining classes of Merrill Lynch Financial Assets, Inc., Series 2002 – Canada 7. All trends are Stable.

The upgrades reflect the positive outlook for the transaction, given significant collateral reductions and an increase in defeased loans, both as a percentage of the pool and number of loans. There are six defeased loans, totaling 38.0% of the transaction, four of which (34.4% of the pool) are in the top ten. As of April 2010, the transaction has amortized $96.2 million, or 34.3%. Of the original 49 loans, 36 remain in the transaction. 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 the transaction. The portfolio’s strength in spite of these stresses led to the rating upgrades.

Overall, the pool reported a weighted-average debt-service coverage ratio (WADSCR) of 1.29x (on a whole-loan and P&I basis), compared with issuance of 1.40x. The pool’s weighted-average loan-to-value ratio (WALTV) has decreased from 70.7% at issuance, to 62.2%, as of April 2010.

Geographically, the pool has become more concentrated due to payoffs, with properties now located across five provinces, down from seven provinces at issuance. Ontario remains the largest geographic concentration (24.4% of the pool). By property type, retail assets lead the transaction at 28.1% of the current pool balance. As of April 2010, the trust balance totals $184,536,747.

Currently there are two specially serviced loans in the transaction: Holiday Inn Brampton Select (3.1% of the pool) and Sussex Mall (1.3% of the pool). The former was placed into special servicing due to its failure to make required FF&E reserve payments. However, it has been confirmed that the borrower is currently converting the hotel into a Holiday Inn, and to date the monies spent on renovations have surpassed the required FF&E reserve payments. Sussex Mall matured in May 2009. The borrower passed away in March 2009, and the borrower’s accounts were frozen. The 134,809 sf shopping centre is completely vacant, although two tenants continue to fulfill their lease obligations. A receiver has been appointed, and the property is being marketed for sale. DBRS has liquidated the property in its models based on the forced sale value listed in a June 2009 appraisal, including a 10% haircut. Furthermore, DBRS has HotListed two loans because of low occupancy and a low DSCR: Prospectus ID#14 (St. Laurent Industrial Portfolio #2) and Prospectus ID#21. For further information, please refer to the Surveillance Report.

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.