DBRS Confirms 15 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 18

DBRS has today confirmed all 15 rated classes of the Merrill Lynch Financial Assets Inc., Series 2006-Canada 18 transaction as follows:

Class A-2 at AAA (sf)
Class A-3 at AAA (sf)
Class B at AA (sf)
Class C at A (sf)
Class D at BBB (sf)
Class E at BBB (low) (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 at AAA (sf)
Class XP-1 at AAA (sf)
Class XP-2 at AAA (sf)

All classes were confirmed with a Stable trend.

These rating actions reflect the strong performance of the pool overall, with a weighted-average DSCR (WADSCR) of 1.49 times (x) for 13 of the largest 15 loans in the pool as of the most recent year-end reporting available (11 loans, representing 54.52% of the pool were reporting YE2011 financials and two loans, representing 3.83% of the pool, were reporting YE2010 financials as of the April 2012 remittance date). One of the largest 15 loans in the pool, representing 1.99% of the pool balance (Prospectus ID #15), is fully defeased. Prospectus ID #18 (1500 Royal York), representing 1.88% of the pool, has not reported financials since YE2009.

As of the April 2012 remittance report, there are 62 of the original 83 loans remaining in the pool, representing a collateral reduction of 30.20% since issuance. There were nine loans on the servicer’s watchlist, representing 7.15% of the pool balance. Three of those loans were reporting YE2011 financials (2.41% of the pool) and five of the loans were reporting YE2010 financials (3.88% of the pool). For those eight loans, the WADSCR was 0.64x. One loan (0.86% of the pool) has not reported financials since YE2009.

There are nine loans scheduled for maturity through the end of 2012 in the pool, representing 9.34% of the pool balance as of the April 2012 remittance report. All nine loans were reporting YE2011 financials and had a WADSCR of 1.69x and a weighted-average debt yield of 13.47%, as calculated on the outstanding trust balance as of the April 2012 remittance report. Three of the loans scheduled for maturity in 2012 are secured by independent living facilities and have full recourse to the sponsor, one of the largest owner/operators of independent living facilities in Canada.

Only one of the maturing loans, Prospectus ID #39 (Nottingham Centre), representing 0.99% of the pool balance, currently exhibits weak credit metrics with a YE2011 DSCR of 0.98x and an exit debt yield of 8.46%, as calculated on the outstanding whole loan balance at the December 2012 maturity of $4.52 million. The whole loan includes the trust loan and a B note held outside of the trust that will have a balance of approximately $535,000 at maturity. The loan is secured by an unanchored retail centre constructed in 2001 in the Edmonton suburb of Sherwood Park, Alberta. Since issuance, the property performed as expected until early 2011 when the largest tenant at the property, Blockbuster, vacated after filing for bankruptcy, dropping the property to approximately 80% occupied. The borrower reports that a temporary tenant has been secured on a month-to-month basis in Toys “R” Us, but nothing long term has been signed to date. Toys “R” Us is paying a lower rate than that paid by Blockbuster, as exhibited in the low YE2011 DSCR of 0.98x. Given these developments, the loan could have difficulty securing a replacement loan in time for the scheduled maturity. There is no recourse to the borrower for this loan. DBRS will continue to monitor the loan closely for developments.

For additional detail on the DBRS viewpoint for this transaction, and for details on the largest loans in the pool and the loans on the servicer’s watchlist, please see the April 2012 Monthly Surveillance Report for this transaction, which will publish shortly.

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.