DBRS Confirms Ratings of Merrill Lynch Financial Assets Inc., Series 2005-Canada 15

DBRS has today confirmed the ratings of all 18 classes of Merrill Lynch Financial Assets Inc. Commercial Mortgage Pass-Through Certificates, Series 2005-Canada 15 as follows:

Class A-1 at AAA (sf)
Class A-2 at AAA (sf)
Class B at AA (high) (sf)
Class C at A (high) (sf)
Class D-1 at BBB (high) (sf)
Class D-2 at BBB (high) (sf)
Class E-1 at BBB (sf)
Class E-2 at BBB (sf)
Class F at BB (high) (sf)
Class G at BB (sf)
Class H at BB (low) (sf)
Class J at B (high) (sf)
Class K at B (sf)
Class L at B (low) (sf)
Class XC-1 at AAA (sf)
Class XC-2 at AAA (sf)
Class XP-1 at AAA (sf)
Class XP-2 at AAA (sf)

DBRS does not rate the $3.8 million first loss piece, Class M. The trends for all rated classes of the transaction are Stable.

The rating confirmations are supported by transaction-level performance that is in line with the metrics at the time of the last DBRS review. The transaction has a healthy weighted-average debt service coverage ratio (DSCR) of 1.75 times (x) and a weighted-average debt yield of 21.7%. Furthermore, two loans, representing approximately 10% of the current pool balance, are fully defeased. Since the last review, credit enhancement to the bonds has increased, primarily as a result of loan amortization.

At issuance, DBRS shadow-rated one loan (12.7% of the current pool balance) as investment grade. DBRS has today confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

This transaction also has exposure to single-tenant risk, with a group of nine loans secured by properties that are fully leased to a RONA inc. (Rona) home and garden retail store. The loans are not cross-collateralized and represent 23.5% of the current pool balance. The properties are located in various cities throughout Ontario and Québec, and the Rona leases are not set to expire until November 2019. DBRS currently rates Rona at BBB with Negative trend.

There are four loans on the servicer’s watchlist, representing a combined 3.8% of the pool. The largest of the watchlisted loans is Prospectus ID#20, Royal Windsor (2.6% of the current pool balance). This loan is secured by a 200,000 square foot (sf) flex office and industrial property situated within an industrial corridor in Mississauga, Ontario. The loan is on the servicer’s watchlist because of the low occupancy rate, which was 60% as of the June 2011 rent roll, compared with 68% at YE2010 and 75% at YE2009. As a result, the DSCR was 0.52x at YE2010, down from 1.06x at YE2009. Furthermore, there is near-term rollover risk, with a tenant representing 15% of the net rentable area (NRA) on a lease that is scheduled to expire in February 2012. DBRS will continue to monitor leasing activity at the property.

DBRS continues to monitor this transaction on a monthly basis in the Global CMBS Monthly 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 methodologies are CMBS Rating Methodology and CMBS North American Surveillance, which can be found on our website under Methodologies.