DBRS Confirms All 18 Classes of Merrill Lynch Financial Assets Inc., Series 2005-Canada 15

DBRS has today confirmed the ratings of all 18 classes of Merrill Lynch Financial Assets Inc. Commercial Mortgage Pass-Through Certificates, Series 2005-Canada 15 as follows:

Class A-1 at AAA
Class A-2 at AAA
Class B at AA (high)
Class C at A (high)
Class D-1 at BBB (high)
Class D-2 at BBB (high)
Class E-1 at BBB
Class E-2 at BBB
Class F at BB (high)
Class G at BB
Class H at BB (low)
Class J at B (high)
Class K at B
Class L at B (low)
Class XC-1 at AAA
Class XC-2 at AAA
Class XP-1 at AAA
Class XP-2 at AAA

All classes were confirmed with a Stable trend.

The ratings reflect the increased credit enhancement to the bonds from a collateral reduction of approximately 37.3% since issuance, the healthy weighted-average debt service coverage ratio (DSCR) of 1.68x for the pool and the strong performance of the ten largest loans in the pool, which had a straight-average debt yield of 15.1% for 2009. Furthermore, there are two defeased loans in the pool, both of which are in the top ten loans, comprising 10.06% of the pool.

One loan has been liquidated since issuance, Prospectus ID#48, Snowdown Professional Building. This loan was transferred to the special servicer in 2009 after failing to payoff at the October 1, 2009 maturity. The property was sold via a receivership sale in July 2010, with proceeds of $914,965, the Trust experienced a realized loss to the unrated Class M certificates of $625,390 for this $1.54 million loan. There are no other loans in special servicing currently in the pool.

There are five loans on the servicer’s watchlist, representing a combined 5.92% of the pool.

The largest of the watch-listed loans is Prospectus ID#20, Royal Windsor, with 2.59% of the transaction. The loan is collateralized by a 204,136 sf industrial property located in a largely industrial section of Mississauga, Ontario. The loan is on the servicer’s watchlist for a low DSCR at YE2009 of 1.02x due to the space reduction for the largest tenant at the property in 2009, which left the property at 75% occupancy. The property is exposed to significant rollover between August 2010 and February 2011, with over 40% of the NRA scheduled for expiry during those months. DBRS has requested a leasing update from the servicer and will continue to monitor the loan by placing it on the DBRS HotList for further review. The loan remains current, with no payment issues throughout this period of reduced occupancy as compared to historical levels.

The second largest watchlisted loan is Prospectus ID#27, Armdale Place, with 2.11% of the transaction. This loan is collateralized by a high-rise multifamily property located in Halifax. The property was constructed in 1976 and has undergone renovations to the common areas and unit interiors over the past three years. The borrower invested $250,000 in 2009 and intends to invest that much or more in 2010, according to the servicer. The loan is on the servicer’s watchlist for a low DSCR at YE2009 of 0.98x. The occupancy has steadily improved throughout the past two years, with the property at 85% occupied in August 2010 as compared with 73% occupied at YE2008. The reduction in DSCR from issuance is primarily due to an increase in expenses at the property, which have climbed by 35% overall from the underwritten figures at YE2009. The city of Halifax has fared well in the current economic climate; the unemployment rate at August 2010 was 6.1% per StatCan, as compared to approximately 8% for the country overall. DBRS will continue to monitor the loan’s performance.

There are three smaller loans on the servicer’s watchlist, comprising a combined 1.21% of the pool; two of those loans are Prospectus ID#55 and ID#58, both of which are part of a crossed pool of eight loans backed by smaller retail properties scattered throughout British Columbia and anchored by Prospera Credit Union. These two loans comprise a small portion of the crossed pool, which combines for 4.91% of the transaction and has a straight-average DSCR of 1.39x and 99% occupancy. These properties also had sublease space that was not renewed; both properties are primarily occupied by Prospera Credit Union on a master lease through 2019, five years after the loans’ maturity. The other six loans in the crossed pool are 100% master leased to Prospera Credit Union through 2019. This pool of loans should continue to perform well in the aggregate.

There is one shadow rated loan in the transaction, Prospectus ID#1, EPR Pooled Senior Interest. The shadow rating was also confirmed, as the loan, which represents 12.98% of the current pool balance, continues to perform well with a DSCR of 2.10x at YE2009 and a debt yield of 24% for the whole loan. The whole loan balance is $103.8 million and includes a pari passu A-note balance of $78.3 million and a $25.5 million subordinate B-note. This trust holds the controlling piece of the pari passu senior interest, with a current balance of $39.1 million. The whole loan is collateralized by four retail/entertainment properties, each anchored by a 16- or 24-screen AMC theatre, located in Misssissauga, Whitby, Oakville, and Kanata, all in Ontario. The loan sponsor is Entertainment Properties Trust, a publicly traded REIT with assets exceeding $2 billion as of November 3, 2010.

DBRS applied a net cash flow stress of 20% across all loans in the pool and when comparing the DBRS required credit enhancement levels to the current credit enhancement for all classes, the confirmations as outlined were appropriate.

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.