DBRS Upgrades Two, Confirms 14 Classes of Merrill Lynch Financial Assets Inc., Series 2004-Canada 14

DBRS has today upgraded the ratings of two classes of Merrill Lynch Financial Assets Inc., Series 2004-Canada 14 as follows:

-- Class B to AAA (sf) from AA (high) (sf)
-- Class C to AA (low) (sf) from A (high) (sf)

Additionally, DBRS has today confirmed the ratings of the 14 remaining classes in the transaction as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class XC-1 at AAA (sf)
-- Class XC-2 at AAA (sf)
-- Class D-1 at A (low) (sf)
-- Class D-2 at A (low) (sf)
-- Class E-1 at BBB (high) (sf)
-- Class E-2 at BBB (high) (sf)
-- Class F at BBB (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)

DBRS does not rate the $5.1 million first loss piece, Class M. All trends are Stable.

The rating upgrades reflect the stable performance the transaction continues to exhibit, with 19 loans having been successfully repaid since issuance. Overall, the financial performance for the remaining 32 loans is strong, with a weighted-average debt service coverage ratio (DSCR) of 1.69 times (x) and a weighted-average loan-to-value (LTV) of 53.7%. As of the July 2012 remittance report, approximately 42.9% of the collateral has been reduced.

The largest loan in the pool, 5000 Yonge Street Senior Interest (Prospectus ID#1, 31.3% of the current pool balance), is secured by a Class A office property built in 2004 and located in Toronto. The two largest tenants at the property represent 50% of the net rentable area (NRA) and have long-term leases through April 2019. Based on the YE2011 financials, performance has remained strong, with a DSCR of 1.71x and a 100% occupancy rate, an improvement over 1.45x and 88%, respectively, at issuance. DBRS shadow-rated this loan as an investment-grade loan at issuance. With this review, DBRS has confirmed the investment-grade shadow rating associated with this loan.

In addition, DBRS shadow-rates InnVest Hotel Portfolio 2 (Prospectus ID#3) and the U-Haul Portfolio (Prospectus ID#3, ID#7, ID#26,ID#32 ID#36, ID#40, ID#41, ID#42, ID#45, ID#49, and ID#50) as investment-grade loans. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade characteristics.

The transaction has specific exposure to Windsor, Ontario, as there are six loans, representing 7.71% of the current pool balance, secured by multifamily properties throughout Windsor in the deal. These six loans are separated into two distinct sets of cross-collateralized and cross-defaulted groups of three loans each. At YE2011, one portfolio (Prospectus ID#19, ID#25 and ID#47) reported a weighted-average DSCR of 1.33x, a weighted-average occupancy rate of 94% and a weighted-average rental rate per unit of $836. The other portfolio (Prospectus ID#21, ID#24 and ID#43) reported these figures at 1.08x, 94% and $836, respectively. According to Canada Mortgage and Housing Corporation (CMHC), Windsor multifamily properties reported a total vacancy rate of 7.7%, with average rental rates at $680 per unit.

There are no loans in special servicing and there are four loans on the servicer’s watchlist, representing 8.57% of the current pool balance.

As part of its review, DBRS analyzed the top 15 loans, the shadow-rated loans and the loans on the servicer’s watchlist, which comprise approximately 94.9% of the current pool balance.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report to assess any material changes at the bond or collateral level that may affect ratings. The Monthly CMBS Surveillance Report also highlights any material updates in the loans on the servicer’s watchlist and any specially serviced loans.

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

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

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.