DBRS Upgrades Six Classes of ClareGold Trust, Series 2006-1

DBRS has today upgraded the ratings of six classes of ClareGold Trust Commercial Mortgage Pass-Through Certificates, Series 2006-1 as follows:

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

The remaining classes were confirmed as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class D at AAA (sf)
-- Class L at B (high) (sf)

The notional Class X was also confirmed at AAA (sf).

All trends are Stable.

DBRS does not rate the $3.80 million first-loss piece, Class M.

These rating actions reflect the overall stable performance of nine of the original 105 loans remaining in the pool, with a weighted-average debt service coverage ratio (DSCR) of 1.83 times (x) and a weighted-average debt yield of 20.12%, based on the net cash flow (NCF) figures at YE2011 and the current outstanding loan balances. The pool has a significant collateral reduction of 90.56% since issuance. Seven of the remaining loans, representing 63.32% of the pool, have full recourse to the sponsor. The largest remaining loan, representing 21.05% of the pool, is scheduled to mature in December 2012 and one loan representing 9.77% of the pool is on the servicer’s watchlist for a near-term maturity in August 2012. Given the loan’s credit characteristics with a DSCR of 1.47x and a debt yield of 20.39%, the loan should be able to obtain refinancing at maturity. The remaining seven loans, representing 63.32% of the pool, are scheduled to mature by August 2013.

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 in 2013, DBRS sized each loan individually for the purposes of this review. 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 conservative cap rates 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.

Prospectus ID #5 is the largest remaining loan representing 21.05% of the current pool balance. The loan is secured by a mixed-use office/retail property in Calgary, Alberta, and is scheduled to mature in December 2012. The loan displays strong credit metrics with a DSCR of 2.05x at YE2011 and a debt yield 21.27%. As of the March 2012 rent roll, the property was 92.21% occupied; however, according to the servicer, one tenant occupying 4.48% of the net rentable area (NRA) has vacated upon lease expiry in July 2012, bringing the occupancy rate down to 87.73%. An additional 16.08% of the NRA will expire before maturity in December 2012. According to the servicer, the borrower is in ongoing renewal discussions with the expiring tenants. The Calgary office market has been booming in recent years with vacancy dropping from over 15% in 2009 to just over 6% as of Q1 2012 and a 15.56% increase in asking rates from Q4 2011, according to CB Richard Ellis (CBRE). Due to the property’s location in a healthy submarket and the strong historical property performance and the loan’s credit metrics, the loan should be financeable at maturity. Additionally, the leverage on the property is considered reasonable at $110 per square foot.

There are four loans shadow-rated investment grade remaining in the pool, representing a combined 46.38% of the current pool balance. DBRS has confirmed all four shadow ratings for these loans based on the continued strong performance of each individual loan.

Notes:
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.

This rating is 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 Methodology (May 2011), which can be found on our website under Methodologies