DBRS Confirms the Ratings of Merrill Lynch Financial Assets Inc., Series 2003-Canada 10

DBRS has today confirmed the ratings of Merrill Lynch Financial Assets Inc., Commercial Mortgage Pass-Through Certificates, Series 2003-Canada 10 as follows:

Class A-1 at AAA
Class A-2 at AAA
Class B at AAA
Class XC-1 at AAA
Class XC-2 at AAA
Class C at AAA
Class D1 at A (high)
Class D2 at A (high)
Class E1 at BBB (high)
Class E2 at BBB (high)
Class F at BBB (low)
Class G at BB (high)
Class H at BB
Class J at B
Class K at B (low)

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

DBRS does not rate the $5,985,200 first loss piece, Class L.

The pool collateral has been reduced by 23.8% with the current pool balance at approximately $351 million.

The rating action reflects the increased credit enhancement and the defeasance of six loans (22.6% of the pool). Overall, financial performance for the remaining collateral is strong with a weighted-average debt service coverage ratio (WADSCR) of 1.65x and a weighted-average loan-to-value (WALTV) of 64.3%. In addition, DBRS reviewed the nine loans (16.4% of the pool) on the servicer’s watchlist and has kept two of those loans on the DBRS HotList for further review. All 53 remaining loans in the transaction are current.

Prospectus ID#8, Lawrence Terrace, is on the servicer’s watchlist because the August 2009 servicer site inspection report reported the property to be in Fair condition. The loan is secured by a high-rise apartment complex in Toronto located south of Highway 410. The property was built in 1964 and is comprised of 410 units. The YE2009 DSCR was reported at 0.83x, however, this is likely attributed to an increase in the repairs and maintenance (R&M) expenditures, which is a positive sign that the borrower is recognizing the properties Fair condition. Occupancy has remained stable at 95%; however, DBRS will keep this loan on the HotList for further review as updates become available.

Prospectus ID#38, Ramada Belleville, is on the servicer’s watchlist because the YE2009 DSCR was reported at 0.39x. This loan had previously been on the servicer’s watchlist with the YE2008 DSCR reported at 0.68x. The loan is secured by a 124-unit full-service Ramada Inn & Conference Centre located in Belleville, Ontario in the Bay of Quinte district. Despite the performance issues at the property, the loan has a reasonable leverage point, on a per unit basis, of $23,860. Additionally, the loan has full recourse to the sponsor, Royal Host REIT.

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 confirmations.

While DBRS recognizes the issues surrounding the large HotListed loans and the questions that remain outstanding with respect to those loans, the current rating categories are appropriate given the current credit quality across the entire pool.

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.