DBRS Upgrades Nine and Confirms Four Classes of Schooner Trust, Series 2006-5

DBRS has today upgraded the following classes of Schooner Trust, Series 2006-5:

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

In addition, DBRS has today confirmed Classes A-1, A-2 and XC at AAA (sf), as well as Class L at B (low) (sf). The trend on all rated classes is Stable.

The pool continues to perform as expected. There has been healthy cash flow growth in the Top 15 loans overall, with a weighted-average net cash flow change of 12.8% since issuance. The weighted-average debt yield, debt service coverage ratio (DSCR) and occupancy for these loans are 13.7%, 1.64 times (x) and 97%, respectively. DBRS maintains shadow ratings on six loans in the pool, representing 9.7% of the pool. In addition to the seven fully defeased loans in the pool, representing 8.9% of the pool, DBRS would view 18.6% of the current pool balance as investment-grade.

Of the loans on the servicer’s watchlist, just a few have realized a decline in performance since issuance. 2695 Dollard Avenue (Prospectus ID#48, 0.7% of the current pool balance) was placed on the watchlist in April 2010 when the DSCR fell to 0.34x for YE2009, as a result of the property’s sole tenant vacating its space. The property has undergone some short-term leasing since then, but has been completely vacant for most of the last few years. The YE2011 DSCR declined further, to -0.80x. According to servicer commentary, comments in the June 2012 servicer’s site inspection and comments in the YE2011 operating statement analysis report (OSAR), a lease was executed for 66% of the NRA and the new tenant was expected to have taken occupancy by Q3 2012. The asset was also reportedly renovated for the incoming tenant. With the execution of the new lease, the property is still 33.7% vacant; however, Altus InSite listed no space available for lease as of March 6, 2013. An updated rent roll confirming the leasing update was not provided by the servicer. This loan has no history of delinquency and benefits from a full recourse guarantee.

A second loan on the servicer’s watchlist that is operating on negative cash flow is 114 Railside Road (Prospectus ID#54, 0.6% of the current pool balance). The subject was originally built as a single tenant building and is located in Toronto. After the property became vacant, the space was reconfigured and partially leased; however, both occupancy and cash flow remained low, with the DSCR for the YE2010 reported to be -0.63x. The remaining dark space was leased in 2011, and the YE2011 DSCR improved to -0.20x. DBRS expects the YE2012 OSAR will reflect further improvement to cash flow. This loan has no history of delinquency and benefits from a full recourse guarantee.

DBRS maintains investment-grade shadow ratings on six loans in this transaction, together representing 9.7% of the current pool balance. DBRS has today confirmed these shadow ratings.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool, the loans in special servicing and the loans on the servicer’s watchlist. The March 2013 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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.