DBRS Upgrades Two Classes and Confirms One Class of Merrill Lynch Financial Assets Inc., Series 2002-Canada 7

DBRS has today upgraded the following two classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 7 as follows:

-- Class H to AAA (sf) from B (sf)
-- Class J to BBB (low) (sf) from B (low) (sf)

DBRS has also confirmed the following class of Merrill Lynch Financial Assets Inc., Series 2002-Canada 7:

-- Class X at AAA (sf)

All trends are Stable.

These rating actions reflect the overall stable performance of the three remaining loans in the pool, with a weighted-average debt service coverage ratio (DSCR) of 1.34 times (x) and a weighted-average debt yield of 33.38% as of the YE2011 financials. The pool has seen a significant collateral reduction of 98.49% since issuance. Two of the remaining three loans are fully amortizing with a combined balance of $1.67 million, representing approximately 40% of the remaining trust balance. Both of those loans are scheduled to mature in 2016.

The largest loan remaining in the pool has a balance of $2.56 million, representing 60% of the remaining pool balance, and is expected to mature in 2014. The loan is secured by a 62,848 sf office building in Ontario. The property is 100% occupied, as of the July 2012 rent roll; however, the property has significant roll over risk before loan maturity. The property is currently performing at a stable level with a DSCR of 1.27x.

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, DBRS sized each loan individually for the purpose of this review. DBRS stressed existing cash flows and applied higher end cap rates by property type to derive a conservative value for modelling purposes. Despite the stressed scenario, the resulting credit indicators are still healthy for the pool overall, providing substantiation for the rating upgrades. In addition, all three of the remaining loans are performing, and there are no loans on the servicer’s watchlist or in special servicing, as of the February 2013 remittance report.

For additional detail on the DBRS viewpoint for this transaction, and for details on all of the remaining loans in the pool, please see the February 2013 Monthly CMBS Surveillance Report for this transaction, which will be published shortly.

Notes:
All figures are in Canadian Dollars unless otherwise noted.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.