DBRS Confirms the Ratings of Merrill Lynch Mortgage Loans Inc., Series 1998-Canada 1

DBRS has today confirmed the ratings of Merrill Lynch Mortgage Loans Inc., Series 1998-Canada 1 as follows:

-- Class E at AA (sf)
-- Class F at A (sf)
-- Class X at AAA (sf)

All trends are Stable.

The rating actions reflect the overall stable performance of the two remaining loans in the pool, with a weighted-average debt service coverage ratio (DSCR) of 1.32 times (x) and a weighted-average debt yield of 25.48% as of the YE2011 financials for both remaining loans. Both loans are fully amortizing with expected maturity of 2018 and 2020. DBRS does not rate the first loss Class G, which has a current balance of $4.7 million, approximately 42% of the remaining trust balance.

One of the two remaining loans has seen a significant decrease in DSCR. Prospectus ID #3 King’s Health Centre, representing 54.38% of the current balance, is secured by a 177,859 square foot office property located in downtown Toronto. The property has experienced an occupancy decrease from 78% at YE2010 to 68% at YE2011 due to the largest tenant downsizing at the property. As a result, there was a corresponding decline in financial performance with a significant DSCR decrease from 1.71x at YE2010 to 1.16x at YE2011. The property may have an additional occupancy decline if no additional space is leased by the end of 2012 because a tenant with 11.65% of the net rentable area (NRA) has given notice that it will vacate the property at lease expiration. Despite the volatility surrounding the DSCR decline, the leverage of the loan is low at $45 per unit. The interest rate on the loan of 7.98% is well above current interest rates on newly originated commercial real estate loans.

Prospectus ID #9 Hotel Manoir Victoria, representing 45.62% of the current balance, is secured by 145-key full-service hotel in Québec City. The hotel is well located in Old Québec City and benefits from being within walking distance from public transportation, entertainment in the area and several tourist attractions. At YE2011, the property was 63.40% occupied with an average daily rate (ADR) of $152.64 and revenue per available room (RevPar) of $96.77. The loan has a healthy DSCR of 1.52x at YE2011 and a strong debt yield of 27.45%. The trust’s exposure per key is considered reasonable at $34,647.

For additional detail on the remaining loans in the pool, please see the July 2012 Monthly CMBS Surveillance Report for this transaction, which will be published shortly.

The applicable methodology is CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (May 2011), which can be found on our website under Methodologies.