DBRS Confirms 15 Classes of Merrill Lynch Financial Assets Inc., Series 2007-Canada 21

DBRS has today confirmed all 15 rated classes of the Merrill Lynch Financial Assets Inc., Series 2007-Canada 21 transaction. The ratings were confirmed as follows:

Class A-1 at AAA (sf)
Class A-2 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)

In addition, DBRS notes that six of the 15 classes — Class F, Class G, Class H, Class J, Class K and Class L — have Interest in Arrears. The remaining nine classes were confirmed with Stable trends.

These rating actions reflect the strong performance of the pool overall, with a weighted-average DSCR of 1.45 times (x) and a weighted-average debt yield of 11.4% for the pool, based on the most recent year-end reporting available for the individual loans as of the May 2012 remittance report. There are 33 of the original 41 loans remaining in the pool, with a collateral reduction of 18.8% since issuance. There were no defeased loans in the pool as of the May 2012 remittance report.

Prospectus ID #15 (Castleridge Plaza) was previously in special servicing as a result of a dispute within the ownership structure. The dispute was resolved, with the loan transferring back to the master servicer in December 2010. The loan was originally scheduled to mature in January 2012 and the borrower was granted an extension to April 2012. Although outstanding principal balance was repaid in full with the May 2012 remittance, the $85,840 in fees the special servicer incurred as part of the workout in 2010 were not reimbursed by the borrower as part of the repayment. The servicer has recouped those fees from the trust, causing interest shortfalls through Class F. The servicer has advised that the shortfalls associated with this loan will be repaid with the June 2012 remittance.

There are four loans on the servicer’s watchlist, representing 17.4% of the overall pool balance; all four of these loans are in the Top Fifteen, with the largest, Prospectus ID #3 (550-11th Avenue Building), representing 6.0% of the pool. That loan is secured by an office building located in downtown Calgary’s Beltline district and is on the watchlist for a low DSCR that resulted from fluctuations in occupancy at the property in 2008 and 2009. The property is now fully occupied and cash flows should improve in the near term.

Prospectus ID #8 (Holiday Inn Markham) represents 3.4% of the pool and is on the watchlist for the loan’s maturity, which was originally scheduled for January 2012, and a low DSCR. There is a subordinate B note held outside of the trust, with a balance of approximately $2.2 million as of the May 2012 remittance report. The servicer granted a six-month extension of the maturity to June 2012 to accommodate the borrower’s refinance schedule; as part of the extension, a principal paydown of approximately $2.8 million was applied to the outstanding trust balance with the April and May 2012 remittances. As of the May 2012 remittance, the trust loan had a balance of $10.8 million, or $41,813 per key. This is a significant reduction from the issuance balance of $15.6 million, or $52,174 per key. The servicer has advised that another extension is in the process of being approved, and anticipates that the borrower will repay the loan in the near term. The property has continued to struggle in recent years, with a YE2010 DSCR of 0.68x and a Q3 2011 DSCR of 0.65x. However, the loan has never been delinquent and the borrower has exhibited a commitment to the property in keeping the loan current, despite the performance issues that began in 2008 as part of the general economic downturn.

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 May 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 (January 2012) and CMBS North American Surveillance (May 2011), which can be found on our website under Methodologies.