DBRS Upgrades Two Classes, Confirms 13 Classes of Schooner Trust, Series 2005-3

DBRS has today upgraded the ratings of two classes of Schooner Trust Commercial Mortgage Pass-Through Certificates, Series 2005-3, as follows:

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

Additionally, DBRS has confirmed the ratings on the remaining classes in the transaction and has changed the trends on Class J through Class L to Negative from Stable, reflecting the risk associated with the 71 Rexdale Boulevard loan, which is discussed in detail below. The trends on the remaining classes are Stable.

The ratings upgrades reflect the increased credit enhancement to the bonds from a collateral reduction of approximately 23.2% since issuance. As of the September 2012 remittance report, 12 loans have paid out of the pool since issuance, leaving 82 loans remaining in the transactions. The weighted-average debt service coverage ratio (DSCR) and weighted-average LTV remain stable at 1.61x and 58.3%, respectively.

DBRS continues to closely monitor the 71 Rexdale Boulevard loan (3.37% of the current pool balance), which is secured by a food processing and cold storage facility near the Islington Avenue and Highway 401 interchange in northwestern Toronto. The property has been 100% vacant since July 2011, when the previous sole tenant exercised its lease termination option, which included a fee roughly equivalent to 80% of the annual debt service. While the servicer reports some interest in the property, the specific use and specialty build-out of the property have proven to be a challenge in leasing the subject. As a result of the building being vacant for the second half of 2011, the YE2011 DSCR decreased to 1.18x, compared to 1.52x at YE2010. According to the June 2012 servicer site inspection, the borrower is considering dividing the property into two units, but no construction has commenced at this time. The loans remains current as the borrower continues to pay debt service and operating expenses.

At issuance, DBRS shadow-rated seven loans, representing 7.62% of the current pool balance, as investment-grade. DBRS has today confirmed that the performance of these individual loans remain consistent with investment-grade loan characteristics.

There are currently six loans on the servicer’s watchlist, representing 7.06% of the current pool balance. These loans remain current, but are reporting performance issues and have been placed on the servicer’s watchlist.

As part of its review, DBRS analyzed the top 15 loans, the loans on the servicer’s watchlist and the shadow-rated loans, which comprise approximately 64.69% 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 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.