DBRS Confirms All Classes of N-45 First CMBS Issuer Corporation, Series 2003-1

DBRS has today confirmed the following classes of N-45 First CMBS Issuer Corporation, Series 2003-1:

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class D at AA (high) (sf)
-- Class E at A (high) (sf)
-- Class F at BBB (high) (sf)
-- Class IO at AAA (sf)

Seven of the original 63 loans in this transaction remain outstanding, as of the September 2012 remittance. There are two loans on the servicer’s watchlist, one of which is scheduled to mature on November 1, 2012. The second loan on the watchlist is Centre Commercial Valleyfield (4.6% of the current pool balance). This loan is secured by an anchored retail property located approximately 70 kilometres southwest of Montréal. Zellers is currently the largest tenant, representing 33.6% of the NRA. This particular location is not included on the list of Zellers stores to be re-opened as Target or Walmart, and is scheduled to close in March 2013. A July 2012 servicer site inspection notes that there has been retail development in the area, indicating there is demand in this secondary market. Additionally, this loan benefits from a low leverage point of $16 psf, a 17-year amortization schedule and recourse to the borrower.

Another loan being monitored by DBRS is Zellers Centre (13.0% of the current pool balance). This loan is secured by a distribution centre and a three-storey office component that was fully leased to Zellers at issuance, located in Brampton, Ontario. Given Target’s assumption of Zellers’ leases throughout Canada, there is some concern with regards to the property’s ongoing tenancy. The building is 100% owner-occupied through February 2013. According to the servicer, Hudson’s Bay Company, Zellers’ parent company, has not indicated a change in plans for the property. Leverage on the property is low, at $11 psf, and benefits from a 19-year amortization schedule.

Overall, the deal has historically exhibited stable performance. The current weighted-average debt yield is 23.1% and the current weighted-average LTV is 49.7%. Although the unrated class, with an outstanding principal balance of $13.3 million, provides a substantial amount of comfort to any perceived risk, DBRS will continue to closely monitor those loans with exposure to Zellers.

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