DBRS Confirms 14 Classes of Schooner Trust, Series 2007-7

DBRS has today confirmed Classes A though L of the Schooner Trust, Series 2007-7 transaction, all with a Stable trend. This action is reflective of the overall stable performance as exhibited by the portfolio, which had weighted-average DSCR (WADSCR) of 1.62x, as of the April 2011 remittance report, and a weighted-average loan-to-value (WALTV) of 64.2% for the same period, based on the original values as determined at issuance. There is one loan in special servicing, Prospectus ID#38, Centre 50, representing 0.92% of the current pool balance. In addition, there are 13 loans on the servicer’s watchlist, cumulatively representing 10.52% of the current pool balance. One of those loans, Prospectus ID#10, Trans Canada Highway, is in the top ten loans in the pool with 2.27% of the current pool balance.

Geographically, the properties are located across seven provinces. Ontario represents the largest geographic concentration (50.5% of the current pool balance). By property type, retail assets lead the transaction at 32.6% of the current pool balance. As of the April 2011 remittance report, the trust balance totals $381,108,254. Two of the original 72 loans have been paid in full.

There are ten non-defeased loans scheduled for maturity between April 2011 and December 2011 in the pool, with a WADSCR of 1.50x and a weighted-average exit debt yield of 12% (with nine of ten loans reporting YE2009 financials).

At the low end of the performance range for these ten loans is Prospectus ID#42, 222 and 254 Beach Avenue (0.72% of the current pool balance) with a 0.82x DSCR and a debt yield of 6.53% for YE2009. This loan is secured by a 112-unit multifamily property constructed in 1972 in Kamloops, British Columbia, approximately 350 km NE of Vancouver. The current loan per unit is $24,231 and the LTV of 53%, a decline from 59% at issuance, based on the original valuation of the property from 2007. The servicer reports that the performance declines in 2008 and 2009 are due to a fire that occurred at the property in 2008, causing approximately $450,000 in damages. The property experienced revenue decline associated with the occupancy fluctuations associated with the repairs from the fire, in addition to an increase in expenses, specifically in repairs and maintenance. The 2010 financials are expected to exhibit signs of recovery as the repair work has been completed and verified in the servicer’s 2010 site inspection. The loan matures in November 2011. DBRS will closely monitor the loan’s updated performance figures as the YE2010 financial statements are received. This loan is non-recourse.

The only loan in special servicing is Prospectus ID#38, Centre 50. The loan is secured by a 45,000 sf retail center located in Edmonton, just east of downtown. The loan transferred to the special servicer in February 2010 for delinquency. After the transfer to special servicing, it was discovered that the borrower had placed an unauthorized second and third mortgage on the property without lender consent. The debt service coverage ratio on the senior trust loan is quite high, with a YE2009 DSCR of 1.93x and the property reported an occupancy of 94%, as of December 2010. The current loan per square foot is considered reasonable at $77. The borrower had previously agreed to a repayment plan to bring the loan current, but has since fallen behind on the scheduled payments and the loan is now due for the January 1, 2011 payment. Furthermore, the trust loan matured on March 1, 2011. The servicer reports that the borrower has received a purchase offer for the property that would be sufficient to repay the trust loan; the sale is contingent upon the completion of the required environmental reports and has not closed. In March 2010, the property was appraised at $6.7 million; the outstanding balance of the senior trust loan was $3.5 million, as of the April 2011 remittance report. The resulting LTV of 52%, high occupancy and corresponding trust DSCR of 1.93x are strong indicators that the trust should not experience a significant loss in relation to the workout of this loan by the special servicer.

The largest loan on the servicer’s watchlist is Prospectus ID#10, Trans Canada Highway, with 2.27% of the current pool balance. The loan is collateralized by two industrial buildings totaling 241,000 sf in Dorval, Quèbec. The loan is on the watchlist for the low YE2009 DSCR of 0.92x that resulted from occupancy fluctuations at the properties from 2008 to 2009 and for the Poor rating assigned to one of the buildings at the time of the servicer’s November 2010 site inspection. Among the issues cited at the time of the inspection were concrete degradation and buckling in the building’s floor slab. It was known at issuance that the backfill beneath the slab at the property had significant exposure to pyrite, a mineral that contributes to concrete deterioration, and a $1.6 million reserve was established to fund remediation. The servicer’s November 2011 site inspection confirms that the repair work was underway at the time of the inspection, with completion scheduled for Q2 2011. The reserve had a balance of just over $1 million, as of the April 2011 remittance report. The YE2010 DSCR of 1.12x represents a significant improvement over the YE2009 DSCR; the servicer reports the improvement is due to increases in the average base rental rates at the property from the previous year. As of March 2011, the combined occupancy for the properties was 80%, however, a new tenant has been signed and will take occupancy in May 2011, bringing the total occupancy up to approximately 95%. DBRS will continue to monitor the remediation and repair work at the property as the loan will remain on the watchlist until the work is completed.

There is one shadow-rated loan in the pool, Prospectus ID#1, MTS Building, with 10.37% of the pool balance. That loan’s shadow rating of BBB (low) is reflective of the credit support from the property’s largest tenant, MTS Allstream, who occupies 89% of the NRA on a lease that runs through 2017, five years past the loan’s maturity. The YE2010 DSCR was 1.39x and the property is fully occupied.

For further detail and loan level analysis, please refer to the Monthly CMBS Surveillance Report 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.