DBRS Upgrades Five Classes and Confirms Eight of Schooner Trust, Series 2004-CF2

DBRS has today upgraded the following classes of Schooner Trust, Series 2004-CF2:

-- Class C to AA (high) (sf) from AA (sf)
-- Class D to AA (low) (sf) from A (high) (sf)
-- Class E to A (high) (sf) from A (sf)
-- Class F to BBB (high) (sf) from BBB (sf)
-- Class G to BBB (sf) from BBB (low) (sf)

DBRS also confirmed the following classes:

-- Classes A-1, A-2, X and B at AAA (sf)
-- Class H at BB (sf)
-- Class J at BB (low) (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)

All classes carry a Stable trend.

The rating upgrades follow an increase in the number of fully defeased loans in the pool to 35% of the current pool balance, as well as the continued strong performance of the pool overall. Defeasance of the two largest loans in the pool, PD Kanco Multifamily Portfolio (Prospectus ID#1, 14.4% of the current pool balance) and Westmount Square (Prospectus ID#2, 10.1% of the current pool balance), occurred within the last few months, bringing the total number of fully defeased loans in the pool to nine. Seven non-defeased loans within the top 15, representing 20.8% of the current pool balance, benefit from what DBRS considers to be strong sponsorship and recourse. The pool has experienced approximately 32.6% of collateral reduction since issuance, represented largely in last year’s payout of the DaimlerChrysler Building loan (Prospectus ID#3). The weighted-average DSCR and weighted-average debt yield for the pool is 1.6x and 16.4%, respectively, as of the September 2012 remittance, compared with 1.4x and 11.3% at issuance. There is one loan in special servicing, representing 0.7% of the current pool balance, and an additional three loans on the servicer’s watchlist, representing a combined 7.1% of the current pool balance.

Howard Johnson Hotel – London (Prospectus ID#38, 0.7% of the current pool balance) has been in special servicing since June 2012, after having previously been on the watchlist for a decline in cash flow. The loan is secured by a 79-key Super 8, originally an 87-key Howard Johnson Inn located in London, Ontario. The loan is full recourse to the borrower, who has been delinquent on principal and interest payments as well as property taxes. The special servicer has been in communication with the borrower to bring the loan current, and the workout strategy reportedly being pursued is a sale of the asset. DBRS does not expect there to be any realized losses attributable to this loan.

Also of some concern is one loan on the servicer’s watchlist. Confederation Mall (Prospectus ID#12, 4.1% of the current pool balance) is secured by a 53-unit anchored retail centre west of the Saskatoon CBD. This loan is on the watchlist because the servicer discovered an unapproved second mortgage after the loan had been assumed by Bayfield Realty Advisors Inc. from RioCan REIT. According to the servicer, the second mortgage totals $8.0 million, with a 6.5% coupon, and there will be no change to the loan with respect to this second mortgage until the loan matures in January 2014. Walmart, previously the property’s largest tenant, with 45.2% of the NRA, moved and vacated its space at Confederation Mall when its lease expired in 2011. Canadian Tire took over most of Walmart’s previous space on a long-term lease effective March 2011. At the time of the most recent servicer site inspection, build-out for a space to be occupied by Winners was underway and is scheduled for completion by YE2012. Winners will occupy 7.6% of the NRA on a ten-year lease that went into effect on September 1, 2012. RioCan REIT remains as a guarantor of this loan.

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.