DBRS Upgrades Eight Classes and Confirms Five in Schooner Trust, Series 2004-CF2

DBRS has today upgraded eight classes of Schooner Trust, Series 2004-CF2 and confirmed five classes. Concurrently, Class D through Class L were removed from Under Review with Developing Implications, where they were placed on July 27, 2011. The following actions have been taken.

DBRS has today confirmed the following classes:

– Class A-1 at AAA (sf)
– Class A-2 at AAA (sf)
– Class K at B (sf)
– Class L at B (low) (sf)
– Class X at AAA (sf)

DBRS has also upgraded the following classes:

– Class B to AAA (sf) from AA (high) (sf)
– Class C to AA (sf) from A (high) (sf)
– Class D to A (high) (sf) from BBB (sf)
– Class E to A (sf) from BBB (low) (sf)
– Class F to BBB (sf) from BB (high) (sf)
– Class G to BBB (low) (sf) from BB (sf)
– Class H to BB (sf) from BB (low) (sf)
– Class J to BB (low) (sf) from B (high) (sf)

The trend for all classes is Stable.

The rating actions follow the maturity and successful refinancing of DaimlerChrysler Building (Prospectus ID#3). This loan was secured by a 195,952 square foot (sf) Class A office building in Windsor, Ontario, and was originally scheduled to mature on September 1, 2011. The loan was discharged in full on October 1, 2011, and had an outstanding balance of $25,915,168 at the time of repayment.

Credit enhancement increased as a result of the payoff of the DaimlerChrysler Building loan; that, coupled with healthy credit metrics for the remaining loans in the transaction, merited the upgrades of the above-noted classes. The transaction is seasoned, with observed improvement in the pool since issuance. At issuance, the weighted-average loan-to-value ratio (WALTV), weighted-average debt service coverage ratio (WADSCR) and weighted-average (WA) debt yield were 68.3%, 1.4 times (x) and 11.3%, respectively. As of the October 2011 remittance, with 92% of the deal reporting YE2010 financials, the WALTV, WADSCR and WA debt yield are 58.9%, 1.6x and 14.8%, respectively. In addition to collateral reduction of 30.4% since issuance, the transaction also benefits from 8.5% defeasance.

There are currently two loans on the servicer’s watchlist, one of moderate concern to DBRS. Howard Johnson Hotel – London (Prospectus ID#38, 0.75% of the current pool balance) has changed its banner a number of times since issuance. Originally an 87-key Howard Johnson Hotel, the subject is now a 79-key Super 8. The property’s flag was first changed to Knights Inn in 2009, which was replaced by the Super 8 banner in June 2010. The subject experiences significant competition within the area from similar properties. Updated financial statements for the asset have not been made available, and the last reported financials reflect YE2008 and indicate a DSCR of 0.30x with an occupancy rate of 50%. It has also been made known to the servicer that the real estate taxes are in arrears. The servicer awaits confirmation that the borrower has paid all taxes in arrears. The loan remains current on mortgage payments.

The largest loan in the pool is PD Kanco Multifamily Portfolio (Prospectus ID#1, 14.24% of the current pool balance). This portfolio consists of 736 units, which are primarily one- and two-bedroom apartments, located in the Waterloo, Kitchener, Cambridge and Guelph, Ontario, markets. All of the properties are in good locations, with proximity to high-traffic commercial centres, highways and public transit within their respective communities. With a DSCR of 1.29x and an occupancy rate of 99% as of YE2010, the loan’s performance has been stable since issuance. This loan is scheduled to mature in January 2014, with an estimated exit debt yield of 11.29%.

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

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

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