DBRS Upgrades Eight Classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8

DBRS has today upgraded eight classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8 as follows:

Class C from AA (high) to AAA
Class D from A (high) to AAA
Class E from A to AA (high)
Class F from BBB (high) to AA (low)
Class G from BBB to A (high)
Class H from BB (high) to A
Class J from B (high) to BBB
Class K from B to BB

In addition, DBRS has confirmed five classes as follows:

Class A-1 at AAA
Class A-2 at AAA
Class B at AAA
Class X-1 at AAA
Class X-2 at AAA

All trends for the rated classes of this transaction are Stable.

DBRS does not rate the $8.2 Million first loss piece, Class L.

The pool collateral has been reduced by 44.3% with the current pool balance at approximately $260 million.

The rating action reflects a strong outlook for the pool, primarily because of the successful maturity of 19 loans since issuance (31.5% of the pool at issuance) and the defeasance of seven loans, including the fourth largest loan, Prospectus ID#4, Cookstown Manufacturer’s Outlet Mall (6.36% of the pool). Overall, financial performance for the remaining collateral is strong, with a weighted-average debt service coverage ratio (WADSCR) of 1.60x and a weighted-average loan-to-value (WALTV) of 69.3%. In addition, DBRS reviewed the seven loans (14.3% of the pool) on the servicer’s watchlist and has placed one loan (Prospectus ID#9 1440 St. Catherine Street) on the DBRS HotList for further review. All 51 remaining loans in the transaction are current.

The HotListed loan, 1440 St. Catherine Street, is secured by a 250,000 sf office property in Montréal. The property was built in 1928 and is comprised of 12 floors. The loan is on the servicer’s watchlist for tenant rollover, with 94,702 sf that was set to expire in 2009. The servicer has not obtained a leasing update from the borrower; however, Altus InSite shows 53,000 sf (approximately 20% of the NRA) available, as of October 2010. This is reflective of a vacancy rate that is higher than reported for the submarket, which has a vacancy rate of 8.9%, as of Q2 2010 (Colliers). The asking rent price for the available space is $14.50 psf which is higher than the submarket average asking rental rates of $13.83 psf. In addition, the borrower has not provided updated financials since issuance. Despite these issues, the loan remains current.

DBRS has applied a net cash flow (NCF) stress scenario of 20% across all the loans in the pool and the resulting DBRS required credit enhancement levels, when compared to the current credit enhancement levels to the bonds, warrant the ratings upgrades.

DBRS continues to monitor this transaction on a monthly basis in the Global CMBS Monthly Surveillance report, which can provide more detailed information on the individual loans in the pool.

Notes:
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.