DBRS Upgrades Seven Classes of ClareGold Trust, Series 2006-1

DBRS has today upgraded the ratings of seven classes of ClareGold Trust Commercial Mortgage Pass-Through Certificates as follows:

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

The remaining five classes were confirmed as follows:

Class A at AAA
Class J at B (high)
Class K at B
Class L at B (low)
Class X 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 73% since issuance, including the successful payoff at maturity of four loans in November 2010 that collectively comprised 6.78% of the pool, as of the October 2010 remittance. The weighted-average DSCR for the pool is very healthy, at 1.70x, with the straight-average debt yield in the top ten at 16.9% for YE2009.

There are six shadow-rated loans remaining in the pool, representing a combined 22.89% of the current transaction balance.
Prospectus ID#17 and ID#40 are crossed loans collateralized by two phases of the same retail development in Ontario; those loans were originally shadow-rated BBB (high) by DBRS because of the strength of the full-recourse sponsor. That shadow rating has been confirmed as the sponsor strength remains and the property is performing very well, with a YE2009 DSCR of 1.78x for Prospectus ID#17 and 1.89x for Prospectus ID#40.

Prospectus ID#16 is collateralized by an office property in Ontario; the YE2009 DSCR was at 1.61x and occupancy was at 100%. The loan was originally shadow-rated BBB because of the full recourse to a BBB-rated sponsor; as that sponsor’s rating was recently confirmed in 2010, the shadow rating of BBB on the loan was confirmed as part of this review.

Prospectus ID#56 is collateralized by an industrial property in Ontario; the loan is shadow-rated at BBB based on the strength of the full-recourse sponsor, rated at BBB by DBRS, as confirmed in 2010. Based on that confirmation and the property’s strong performance with a YE2009 DSCR of 1.48x and occupancy of 100%, the shadow rating has been confirmed.

Prospectus ID#22 is collateralized by a retail property in Quebèc; the loan is shadow-rated at BBB (low) by DBRS in accordance with the rating assigned to the largest tenant at the property, on a long-term lease, as of the last review of this transaction in October 2008. The rating for the tenant has since been upgraded to BBB; as such, the shadow rating on the loan has been upgraded to BBB, as the YE2009 performance was very strong with a DSCR of 1.53x and occupancy at 97%.

Prospectus ID#27 is collateralized by a retail development in Ontario; the loan is shadow-rated at BBB because of the rating of the largest tenant at the property, who is on a long-term lease. DBRS has confirmed the shadow rating as the tenant’s rating was confirmed in 2009 and the property performance remains strong with a YE2009 DSCR of 1.44x and an occupancy of 100%.

There are seven loans on the servicer’s watchlist, representing a combined 14.96% of the current transaction balance. Six of those loans are on the watchlist for December 2010 and January 2011 maturities, including a crossed pool of five industrial property loans comprising 7.06% of the pool (Prospectus ID#51, ID#77, ID#82, ID#92, and ID#101), all of which mature December 1, 2010. The YE2009 performance for the pool, as a whole, was strong, with a straight-average DSCR of 1.75x and occupancy of 87%; the loans are collateralized by industrial properties located in Ontario. However, DBRS has learned that two of the properties have experienced significant drops in occupancy after the end of 2009; those loans comprise a combined 3.53% of the pool balance and approximately half of the total balance of the five loans in the crossed pool. The servicer has advised DBRS that the borrower is working on a payout strategy for all five loans by the maturity date.

There is one loan on the servicer’s watchlist for a low DSCR at YE2009: Prospectus ID#12, 5.16% of the current pool balance. The loan is collateralized by a multifamily property in Ontario and had a YE2009 DSCR of 0.43x and an occupancy of 54%. The servicer reports that the occupancy is being forced low by the borrower, who plans to convert the units to condominium units for sale after the loan’s maturity in September 2011; the loan is full-recourse to the guarantors on the loan, according to their pro rata interests in the property.

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

DBRS continues to monitor this transaction on a monthly basis in the Monthly Global CMBS 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.