DBRS Confirms 15 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 18

DBRS has today confirmed all classes of the Merrill Lynch Financial Assets Inc., Series 2006-Canada 18 transaction, all with a Stable trend. This action is reflective of the stable performance of the portfolio overall; as of the April 2011 remittance report, the weighted-average DSCR (WADSCR) was 1.48x and the weighted-average LTV (WALTV) was 63.5%, down from 72.1% at origination. There is one loan in special servicing, Prospectus ID#9, Dominion Place (2.85% of the current pool balance), and 11 loans are on the servicer’s watchlist, comprising 18.28% of the current pool balance.

Geographically, the pool is diverse, with properties located across nine provinces. Ontario represents the largest geographic concentration with 41.1% of the current pool balance. By property type, retail assets lead the transaction at 25.8% of the current pool balance. As of the April 2011 remittance report, the trust balance totals $449,077,500. Eighteen of the original 83 loans have paid out of the pool.

The pool benefits from five shadow-rated loans. Prospectus ID#19, Simcoe and Adelaide, ID#22, 602-604 & 606 King West, and ID#30, Richmond and Bathurst collectively comprise 4.61% of the current pool balance and are shadow-rated BB (low) to reflect the strength of the full-recourse sponsor, Allied REIT. All three loans are secured by office properties in Toronto and had an average YE2009 DSCR of 1.55x and an average occupancy of 90%. Prospectus ID#21, Bolton Country Shopping Centre (1.61% of the current pool balance), is secured by an anchored retail property in Bolton, Ontario and is shadow-rated BBB to reflect the strength of the full-recourse sponsor, RioCan REIT. Prospectus ID#32, Brant Plains Plaza (1.22% of the current pool balance), is shadow-rated BBB (high). The servicer reports that the borrower is in receipt of a signed letter of intent from a new tenant that will bring the property from 85% occupied to approximately 100% occupied by Q2 2011.

The largest loan on the servicer’s watchlist is Prospectus ID#1, TransGlobe Pooled Senior Loan (10.82% of the current pool balance). The loan is the A-2 portion of a pari-passu structured loan that includes an unsecuritized B-note. The loan was originally secured by 28 multifamily properties located primarily in Ontario. At origination, the senior pari-passu A-1 and A-2 notes had a cumulative balance of $137 million and the B-note had a balance of $13.2 million. When the loan transferred from the original servicer to the current servicer, a second subordinate mortgage in the amount of $25 million was discovered. When the borrower failed to repay that loan at maturity in July 2009, the trust loan was transferred to the special servicer.

In May 2010, the servicer processed an assumption of the loan and a partial release and paydown that resulted in three of the original 28 assets being released upon sale and the proceeds of that sale, $18.3 million, being applied pro rata across the A-1, A-2 and B-note balances. The loan transferred back to the master servicer upon completion of the transaction and is on the watchlist for the YE2009 DSCR of 0.89x, as calculated based on the original whole-loan debt service amount and year-end financials for the original collateral pool. However, the servicer conducted a detailed analysis of the Q3 2009 financial statements for the remaining 25 assets in the pool and calculated a DSCR of 1.26x, based on the new debt service figure as recalculated with the $18.3 million paydown. Furthermore, an updated LTV of 65.3% for the A-notes and 71.9% for the whole-loan balance was derived by placing a cap rate on the Q3 2009 NOI. The derived valuation is supported by the updated appraisal received in May 2008 and the BOV obtained in October 2009. DBRS will continue to monitor the loan’s performance closely as the YE2010 financials are received.

Prospectus ID#9, Dominion Place (2.85% of the current pool balance) transferred to the special servicer in late 2010 when the borrower advised it would not repay the loan at the March 2011 maturity due to a lawsuit by the limited partners in the borrowing entity structure. After the loan was transferred, the servicer discovered two unauthorized subordinate mortgages outstanding with a total balance of $3.1 million. The real estate taxes for the property were also found to be in arrears. The loan is secured by a 140,000 sf office property in Calgary, southwest of the downtown core. The current loan per square foot is moderate at $92 and the YE2009 DSCR was 2.21x, with an occupancy of 84%. In April 2011, the servicer reported that the borrower had successfully completed a sale of the property that would result in a full repayment of the trust loan, with funds expected to be applied at the May 2011 remittance report. As such, DBRS does not anticipate a significant loss to the trust associated with the disposition of this loan but DBRS will continue to monitor the loan through its final resolution.

For further detail and loan level analysis, please refer to the CMBS Monthly Surveillance Report under Monthly Reports on www.dbrs.com

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.