DBRS Upgrades Two Classes and Confirms Eight Classes of Solar Trust, Series 2002-1

DBRS has today upgraded the following two classes of Solar Trust, Series 2002-1 (STST 2002-1) as follows:

-- Class D to AAA (sf) from AA (low) (sf)
-- Class E to A (high) (sf) from A (sf)

DBRS has also confirmed the following eight classes of STST 2002-1 as follows:

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (sf)
-- Class H at B (sf)
-- Class J at B (low) (sf)
-- Class IO at AAA (sf)

All trends are Stable.

As of the June 2012 remittance report, there are 18 of the original 66 loans remaining in the pool, representing a significant collateral reduction of 70.54% since issuance. Three of the remaining loans are fully defeased, representing 5.94% of the pool. All of the loans remaining in the pool are scheduled to mature by YE2012, with all fifteen non-defeased loans on the servicer’s watchlist for the upcoming maturity. Two loans are also on the watchlist for low debt service coverage ratio (DSCR). Twelve of the remaining loans, representing 70.53% of the current pool, have full recourse to the sponsor and one loan (15.17% of the current pool) has partial recourse.

As there has been significant paydown for the transaction since issuance and all of the remaining loans are scheduled to mature by the end of 2012, DBRS has applied a cash flow stress to all of the loans in the pool in order to gauge the pool’s performance through the near term. That stress combines with conservative underwriting at issuance and relatively short amortization schedules (25 years or less) to provide a healthy cushion against cash flow volatility and cycles in the financial markets. Despite the stressed cash flows, the resulting credit metrics were still healthy for the overall transaction, providing strong support for the rating actions taken as of this review.

The largest loan in the pool is Prospectus ID #1 (Hotel Novotel), representing 18.86% of the current pool balance. The loan is secured by a 262-key full-service hotel in downtown Toronto. The loan is being monitored for a low DSCR in addition to the upcoming maturity in September 2012. Occupancy declines at the property from 2008 to 2010 contributed to cash flow declines, but the borrower has recently been able to improve occupancy, to 78.02% at YE2011, with a DSCR of 0.92 times (x) for the period. Although cash flow is still down significantly since issuance, the loan exhibits a relatively healthy exit debt yield of 13.59% and an exit loan-to-value (LTV) of 42%. In addition, the leverage is considered low, at $56,234 per key at maturity, and the loan benefits from full recourse.

The South Edmonton Common loans (Prospectus ID #s 7, 25, 27 & 35) and two loans securitized in Solar Trust, Series 2003-CC1, belong to a portfolio of individual, non cross-collateralized loans that are secured by a portion of a 2.3 million square foot retail complex in Edmonton. The six loans have historically reported consolidated financials and have displayed strong historical credit metrics. From 2009 to 2011, the loans have seen a 2% growth in net cash flow, a DSCR increase from 4.21x to 4.30x and a strong debt yield of 39.14%, calculated off the combined current outstanding balance at YE2011. Unlike the four loans in this transaction, the two loans in Solar Trust, Series 2003-CC1 are scheduled to mature in February 2013.

The remaining 10 non-defeased loans benefit from short amortization schedules that have resulted in a healthy maturity profile with a weighted-average exit debt yield of 17.37% and a weighted-average exit LTV of 51.57%, as calculated on the YE2011 cash flows.

For additional detail on the DBRS view point for this transaction, and for details on all remaining loans in the pool, please see the June 2012 monthly CMBS Surveillance Report for this transaction, which will be published shortly.

Notes:
All figures are in Canadian dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is CMBS North American Surveillance Methodology, which can be found on our website under Methodologies at www.dbrs.com.