DBRS Upgrades Four Classes and Confirms Five Classes of Merrill Lynch Financial Assets, Inc., Series 2002-Canada 7

DBRS has today upgraded the following four classes of Merrill Lynch Financial Assets, Inc., Series 2002-Canada 7 as follows:

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

DBRS has also confirmed the following five classes of Merrill Lynch Financial Assets, Inc., Series 2002-Canada 7 as follows:

-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class X at AAA (sf)
-- Class H at B (sf)
-- Class J at B (low) (sf)

All trends are Stable.

These rating actions reflect the overall stable performance of the eight remaining loans in the pool, with a weighted-average debt service coverage ratio (DSCR) of 1.27 times (x) and a weighted-average debt yield of 11.35% as of the most recent year-end reporting date for each loan. Six loans, representing 52.04% of the pool, are reporting YE2011 financials, and one loan, representing 0.60% of the pool, is reporting YE2010 financials. The pool has seen a significant collateral reduction of 85.33% since issuance. Of the remaining loans, one loan is fully defeased (47.36% of the pool) and is scheduled to mature in June 2012.

As there has been significant paydown since issuance for the pool overall, the trust’s exposure is heavily concentrated on a loan-by-loan basis. Given these factors and the high concentration of maturities scheduled through the remainder of 2012, DBRS sized each loan individually for the purposes of this review. As the remaining loans benefit from relatively short or even full amortization schedules and conservatively underwritten cash flows at issuance, there is a healthy cushion against cash flow volatility and cycles in the financial markets. To gauge the pool’s performance through the near term in the event of general market disruption or collateral-specific events, existing property cash flows were stressed and DBRS applied cap rates at the higher end of the spectrum by property type to derive a conservative value for modeling purposes. Despite this stressed scenario, the resulting credit indicators are still healthy for the pool overall, providing strong support for the rating actions taken as part of this review.

One of the loans on the servicer’s watchlist is being monitored for a low DSCR and has recently seen a significant improvement in performance. Prospectus ID #21, representing 6.72% of the current pool balance, is secured by a 62,848 square foot office building located in Ontario. The loan was added to the watchlist for a decrease in DSCR that resulted from a sharp decline in occupancy to as low as 66% in November 2010. Since that time, the borrower has steadily increased occupancy, which was up to 93.46% in January 2012. As a result, the DSCR increased from 0.61x at YE2010 to 1.27x at YE2011. The loan will be removed from the watchlist in the near future.

For additional detail on the DBRS viewpoint for this transaction, and for details on all of the remaining loans in the pool, please see the May 2012 Monthly CMBS Surveillance Report for this transaction, which will be published shortly.

Note:
The applicable methodologies are CMBS Rating Methodology and CMBS North American Surveillance Methodology, which can be found on our website under Methodologies at www.dbrs.com.