DBRS Confirms Seven Classes and Downgrades Four others of Merrill Lynch Financial Assets Inc., Series 2001-Canada 5

DBRS has today confirmed Classes A-1 though E, with Stable trends. Additionally, DBRS has downgraded the ratings of four classes of Merrill Lynch Financial Assets Inc., Series 2001-Canada 5 that were carrying Negative trends:

-- Class F downgraded to C from CCC
-- Class G downgraded to D from C
-- Class H downgraded to D from C
-- Class J downgraded to D from C

Class F has Interest in Arrears and is noted as such.

The downgrades are a result of realized losses from two loans that were in special servicing: Ramada Coral Inn and Ramada All-Suite. The loans shared the same borrower and were secured by two hotels in Niagara Falls, Ontario, approximately 4 kilometres west of the falls. The loans were transferred to the special servicer in January 2008 at which time both properties were in the beginning phases of a significant renovation. The borrower ultimately ran out of funds and the condition of the properties quickly deteriorated. After servicing fees, advances and related expenses, the loans incurred a combined loss of 106% following the liquidation of the assets.

One additional loan remains in special servcing. The Skeena Mall loan is secured by a shopping centre in Terrace, British Columbia and transferred to the special servicer following payment default in March 2007. The property is located in a remote area that was hit hard by the closing of its major employer in 2001. Since then, many tenants, including the former anchor, Zellers, have vacated and as result the subject is currently only 60.8% occupied. The loan is scheduled to mature in February 2011 and at this time, DBRS anticipates this loan will not pay out as scheduled. The updated appraisal would indicate additional losses to the trust that would be contained to Class F. However, these losses do not take into consideration a claim on the recourse guaranty.

After these loans, the performance of the remaining seasoned collateral has been stable. Since issuance, the transaction’s collateral has been reduced by 36.5% and currently, 20.5% of the pool is secured by Government of Canada securities. The pool also has significant number of upcoming maturities with 20 non-defeased loans (57.5% of the pool) coming due through 2011. However, the maturing loans reporting 2008 or 2009 financials have an average debt yield of 24.8% and will benefit from reduced leverage levels after ten years of seasoning.

Further commentary on the loans in special servicing, in addition to the rest of the transaction, can be found in an updated Surveillance Report at www.dbrs.com.

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.