DBRS Places Four Classes Under Interest In Arrears and Confirms Six Others of Merrill Lynch Financial Assets Inc., Series 2001-Canada 5

DBRS has today confirmed Classes A-2, B and X at AAA with Stable trends, as well as Classes G through J with no trend. Classes C through F have Interest in Arrears and have been noted as such. Additionally, Class D has been placed Under Review – Developing, and Class E has been placed Under Review with Negative Implications.

The rating actions are a result of the resolution of Ramada Coral Inn (Prospectus ID#11) and Ramada All-Suite (Prospectus ID#13) as well as a degree of uncertainty surrounding the upcoming maturity of Skeena Mall (Prospectus ID#8, 4.6% of the current pool balance), the sole specially serviced loan in the transaction.

Expenses related to the May 2010 liquidation of the Ramada Coral Inn and Ramada All-Suite have been included in the November 2010 remittance report, and contribute to the sudden increase in interest shortfalls affecting investment grade bonds. DBRS anticipates the shortfalls to Classes C, D and E will ultimately be recoverable. DBRS is in contact with the special servicer and trustee to understand how the outstanding expenses associated with these loans will continue to influence the recovery of interest shortfall going forward.

Skeena Mall remains the primary loan of concern for this pool. Collateral for the loan is a 151,000 sf shopping centre in Terrace, British Columbia, an area facing a soft market and decreasing population following the closure of its major employer in 2001. The loan transferred to the special servicer following payment default in March 2007. Occupancy at the subject is low at 55%, and although the borrower has been negotiating leases with prospective tenants for some time, it seems unlikely that any will take occupancy prior to the loan’s scheduled maturity in February 2011. The borrower engaged a broker to market the property, and the special servicer has confirmed there is serious interest from at least one reputable purchaser. The most recent appraisal was conducted in August 2010 and valued the property at $4.4 million, which is down from a February 2010 appraised value of $4.7 million, and approximately $2 million less than the loan’s current outstanding balance. In a positive development, the outstanding advances on principal and interest on the property peaked at $824,752 in April 2010, and as of this month has been reduced to $454,482. Leverage at the property is considered low at $34 psf. DBRS will continue to monitor this loan closely.

The remaining loans in the pool have continued to exhibit stable performance. There is notable defeasance in the pool, representing 15.2% of the current pool balance. 22 loans representing 66.2% of the pool are scheduled to mature in the next six months. The loans scheduled to remain in the pool past May 1, 2011 have an average most recent fiscal year debt yield of 29.0%.

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.