DBRS Upgrades One Class and Confirms 11 Other Classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8

DBRS has confirmed 11 classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8 as follows:

Class A-2 at AAA
Class B at AAA
Class C at AAA
Class D at AAA
Class E at AA (high)
Class G at A (high)
Class H at A
Class J at BBB
Class K at BB

The notional classes were also confirmed as follows:

Class X-1 at AAA
Class X-2 at AAA

In addition, DBRS has upgraded Class F from AA (low) to AA.

All trends for the rated classes of this transaction are Stable.

DBRS does not rate the $8.2 Million first loss piece, Class L.

The rating actions reflects the strong performance the pool continues to exhibit, with 19 loans being successfully repaid for a collateral reduction of approximately 45.9%, as of the July 2011 remittance report. There are also seven fully defeased loans in the pool, representing 15.1% of the pool balance; two of those loans are in the top 15 loans in the pool, representing approximately 10.1% of the pool balance. Of the 13 loans in the top 15 loans in the pool that are not defeased, ten loans with approximately 45% of the current pool balance are full-recourse to strong sponsors. The weighted-average NCF change for the top 15 loans in the pool since issuance, through the most recent figures available for each loan, is strong at 15.4%, and is indicative of the pool’s overall strength.

Approximately 82% of the pool balance will mature by YE2012, with the bulk of those maturities scheduled in Q3 and Q4 2012. DBRS calculated a weighted-average exit debt yield for those loans of 14.11%, based on the most recent NCF figures available, of which approximately 75% were from YE2009.

There are six loans on the servicer’s watchlist, comprising approximately 7.5% of the current pool balance. One of those loans, Prospectus ID#49, is on the servicer’s watchlist for the upcoming expiration of the property’s single tenant. The servicer confirmed in July 2011 that the tenant renewed for a ten-year term and the loan, which represents approximately 0.60% of the current pool balance, will be removed from the watchlist in August 2011.

The largest loan on the servicer’s watchlist is Prospectus ID#20, representing 2.7% of the current pool balance. The loan is secured by an anchored retail property located in Montréal, Québec. The loan is on the watchlist for a property rating of Poor, as of the October 2010 servicer’s site inspection. The items contributing to the rating included deteriorating pavement, broken windows and loading dock disrepair. The property performance is strong, with a YE2010 DSCR of 1.79x and an occupancy of 87%, for this property that was constructed in 1957. The loan benefits from a strong sponsor who is very experienced in the development and management of this property type. Furthermore, the loan has full-recourse to the sponsor. DBRS will continue to monitor the loan for developments. The loan matures in November 2012.

The second largest loan on the servicer’s watchlist is Prospectus ID#32, representing 1.63% of the current pool balance. The loan is collateralized by an anchored retail property located in Timmins, Ontario. The loan is on the servicer’s watchlist for an occupancy decline since issuance; at January 2011, the property was 75% occupied due to the loss of two tenants in Q3 2010. The DSCR for the fiscal year ending in May 2010 was strong at 1.54x, down from 1.64x at YE2009; however, DBRS anticipates the YE2011 DSCR to decline as the numbers begin to fully reflecting the loss in occupancy at the property in the last part of 2010. The loan benefits from a strong sponsor and has full-recourse. DBRS will continue to closely monitor the property’s performance through the July 2012 maturity.

DBRS has applied a NCF stress scenario across all the loans in the pool and the resulting DBRS required credit enhancement levels, when compared to the current credit enhancement levels to the bonds, warrant the ratings upgrade and confirmations.

DBRS continues to monitor this transaction on a monthly basis in the Monthly CMBS Surveillance Report, which can provide more detailed information on the individual loans in the pool.

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

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