DBRS Confirms Nine and Downgrades One Class of Merrill Lynch Financial Assets Inc., Series 2001-Canada 5

DBRS has today confirmed nine classes of Merrill Lynch Financial Assets Inc., Series 2001-Canada 5 as follows:

-Class A2 at AAA
-Class B at AAA
-Class X at AAA
-Class C at AA (low)
-Class D at BBB
-Class F at C
-Class G at D
-Class H at D
-Class J at D

In addition, DBRS has downgraded one class as follows:

-Class E to B from BBB (low)

The rating action is a result of concern surrounding the sole specially serviced loan in the pool, Skeena Mall (Prospectus ID#8, 13.4% of the current pool balance). The loan is secured by a 151,000 sf shopping centre in Terrace, British Columbia, an area facing a soft market and decreasing population following the closure of a major regional employer in 2001. The loan transferred to the special servicer following payment default in March 2007. According to the special servicer, the borrower has engaged a broker to market the property. The property’s value has declined significantly from issuance, having just experienced a third appraisal reduction in twelve months. According to the April 2011 remittance report, the asset is currently valued at $3 million, which is less than half of the loan’s current outstanding balance and less than an August 2010 appraised value of $4.4 million. The appraised value at issuance was $11 million. This value decline combined with uncertainty regarding the current occupancy and the asset’s remote location speaks to the difficulty surrounding the loan’s workout and has contributed to the DBRS rating action. DBRS will continue to monitor this loan closely.

Lansdowne Place (Prospectus ID#7, 14.2% of the current pool balance) is currently on the servicer’s watchlist due to the departure of two major tenants. Although the vacant spaces represent significant net rentable area, the spaces are being marketed and the borrower has kept current on monthly payments. The loan is cross-collateralized and cross-defaulted with two other loans in the pool, Nashwaaksis Plaza (Prospectus ID#33, 4.24% of the current pool balance) and Spring Park Plaza (Prospectus ID#53, 2.29% of the current pool balance), whose weighted-average DSCR for YE2009 is 2.59x, according to servicer reports.

The remaining loans in the pool have continued to exhibit stable performance overall. One fully defeased loan remains in the transaction, representing 3.4% of the current pool balance, and is scheduled to mature in May 2011. The largest loan in the pool, York Mills Gardens (Prospectus ID#1, 36.2% of the current pool balance), is scheduled to mature in December 2012. The loan is performing with a reported YE2009 DSCR of 1.40x. The loan has amortized on a 25-year schedule and based on the YE2009 net cash flow, the debt yield is healthy and in excess of 16%. All loans scheduled to mature after May 2011 have an average YE2009 debt yield of 29.3%.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is CMBS Rating Methodology and CMBS Global Surveillance, which can be found on our website under Methodologies.