DBRS Upgrades Three Classes and Confirms 15 others of Merrill Lynch Financial Assets Inc., Series 2004-Canada 12

DBRS has today upgraded the ratings of three classes of Merrill Lynch Financial Assets Inc., Commercial Mortgage Pass-Through Certificates, Series 2004-Canada 12 as follows:

-- Class C to AA (high) (sf) from AA (sf)
-- Class D1 to A (high) (sf) from A (sf)
-- Class D2 to A (high) (sf) from A (sf)

In addition, DBRS has confirmed the ratings of 15 classes as follows:

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

DBRS does not rate the CDN $7.6 million first-loss piece, Class M. All trends are Stable.

The ratings upgrades reflect the stable performance of this transaction since issuance, in addition to a significant increase in credit enhancement caused by collateral reduction (amortization and loan maturities) and the defeasance of four loans (9.9% of the current pool balance). Additionally, there are no loans in special servicing and while there are five loans (20.5% of the current pool balance) on the servicer’s watchlist, there are no loans on the DBRS HotList.

The DBRS analysis included an in-depth look at the top ten loans in the transaction, in addition to the loans on the servicer’s watchlist and the loans that are scheduled to mature throughout the remainder of 2011. Cumulatively, these loans represent more than 60% of the current pool balance. DBRS has run various cash flow stress scenarios where cash flows stresses up to 25% were applied across the entire transaction. As more loans report YE2010 financials, we see that these cash flow stresses are not exactly reflective of the actual cash flows the assets are generating, however, in running these stressed scenarios and comparing the DBRS required credit enhancement levels to the current increased credit enhancement levels, across the transaction, the ratings upgrades are appropriate.

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.