DBRS Upgrades One Class and Confirms Five Classes of Merrill Lynch Financial Assets Inc., Series 2001-Canada 5

DBRS has today confirmed the following classes of Merrill Lynch Financial Assets Inc., Series 2001-Canada 5 as follows:

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AAA (sf)
-- Class D at BBB (sf)
-- Class E at B (sf)

In addition, DBRS has upgraded Class C to AA (high) (sf) from AA (low) (sf). The trends on all classes are Stable.

There are five loans left in the pool, and all are scheduled to mature by May 2013.

The pool is concentrated in one loan, York Mills Gardens (Prospectus ID#1), which represents more than half of the current pool balance, with an outstanding principal balance of $16.6 million as of the March 2012 remittance. This loan is secured by part of an anchored retail property in Toronto. The property’s largest tenant is Longo’s, representing 37.5% of the net rentable area (NRA), and is part of the collateral. This loan is scheduled to mature in December 2012 with an exit debt yield in excess of 17%.

DBRS considers the Plaza Group Rollup (Prospectus ID#7,33,53, 29.4% of the current pool balance) to be of some concern because of occupancy issues at one of the three collateral properties. Lansdowne Place is located in Saint John, New Brunswick, and began suffering from increased vacancy when its two largest tenants, Zellers and Eddie Bauer, vacated the property in 2010 and 2011. Based on historical rent rolls, these tenants accounted for almost half of the property’s base rental income. This asset represents 68.6% of the allocated loan balance between the three Plaza Group properties and 44.1% of their combined net cash flow when taking into account the loss of Zellers and Eddie Bauer. The remaining two assets have continued to exhibit stable performance. These three loans are cross-defaulted and cross-collateralized, with full recourse to the borrower, and have no history of delinquency.

The constraining metrics DBRS used in the sizing of this pool were conservative as a result of the status of the Lansdowne Place loan. Although DBRS views the cross-collateralization of the three Plaza Group properties favourably and does not foresee an immediate risk of monetary default, Lansdowne Place’s dark anchor space obscures the chances of a timely refinance.

Notes:
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.