DBRS Upgrades Three Classes of N-45° First CMBS Issuer Corporation, Series 2003-1

DBRS has today upgraded three classes of N-45° First CMBS Issuer Corporation, Series 2003-1 as follows:

-Class D to AA (high) (sf) from AA (low) (sf)
-Class E to A (high) (sf) from BB (high) (sf)
-Class F to BBB (high) (sf) from B (sf)

DBRS has also confirmed the other classes in the transaction as follows:

-Class A-2 at AAA (sf)
-Class B at AAA (sf)
-Class C at AAA (sf)
-Class IO at AAA (sf)

DBRS does not rate the $13.3 million Class G. The trends for all rated classes of the transaction are Stable.

As of the October 2011 remittance report, 13 loans remain in the transaction. There are no delinquent loans; however, two loans are on the servicer’s watchlist. DBRS has placed one of those loans on the DBRS HotList.

The 10555, Henri-Bourassa loan is secured by an industrial property in Saint-Laurent, Québec. The property was built in 1975, renovated in 2001 and is located near the intersection of highway 13 and highway 40, near the Montréal-Pierre Elliot Trudeau International Airport. The loan benefits from a 17-year amortization schedule and the current leverage point, on a per square foot basis, is low at $18. The loan was added to the servicer’s watchlist in August 2011 because the sole tenant has a lease that expires in January 2012. The servicer has confirmed that the tenant renewed their lease through September 30, 2016, two years beyond loan maturity in 2012.

The Terrasse Terrebonne loan is secured by a retail property in Terrebonne, Québec. The property was built in 1977 and is located approximately 28 km north of downtown Montréal. The loan is on the watchlist because of the low occupancy rate and the corresponding low DSCR. The occupancy rate was reported at 50% as of the May 2011 rent roll, which is consistent with the occupancy rate at YE2010 and YE2009. As a result of the low occupancy, the DSCR declined to 0.63x at YE2009 and down to -0.26x at YE2010. While the cash flow decline is concerning, the borrower has kept the loan current since the performance began to decline in 2009. DBRS has inquired with the servicer regarding the leasing efforts at the property, but has not received an update. The property is currently leased to four tenants (the largest being a restaurant), all of which have leases expiring one year after loan maturity in April 2012. Based on the depressed cash flow, this loan could have difficulty refinancing if performance does not improve. DBRS has placed this loan on the HotList to be monitored as the maturity date approaches.

Since the last DBRS review in October 2010, the transaction has exhibited stable performance. The current weighted-average DSCR, based on YE2010 net cash flow, was reported at 1.88x. Excluding the loan on the DBRS HotList, the loans have debt yields ranging from 17.8% to 60.4%, suggesting a favourable refinance outlook for the majority of the loans in the transaction. Additionally, the pool benefits from the defeasance of the fifth largest loan, which represents 6.7% of the current pool balance.

The upgrades recognize the increased credit enhancement from the pay down of seven loans since October 2010, in addition to the continued amortization of the remaining loans in the transaction.

DBRS continues to monitor this transaction on a monthly basis, with ongoing information being available in the Monthly CMBS Surveillance Report

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

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