DBRS Upgrades Five Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 19

DBRS has today upgraded the ratings for five classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 19 as follows:

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

In addition, DBRS has confirmed the ratings for the remaining classes as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class G at BB (sf)
-- Class H at BB (low) (sf)
-- Class J at B (high) (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)
-- Class XP-1 at AAA (sf)
-- Class XP-2 at AAA (sf)
-- Class XC at AAA (sf)

All classes have Stable trends.

There are two loans shadow-rated investment grade by DBRS in the pool, representing a cumulative 4.22% of the pool as of the March 2013 remittance report. Those shadow ratings were confirmed as part of these rating actions.

These rating actions reflect the strength of the pool overall, which had a weighted-average debt service coverage ratio (DSCR) of 1.50 times (x) and a weighted-average debt yield of 12.2%, with collateral reduction of 30.6% since issuance as of the March 2013 remittance report. The transaction closed in 2006 with 75 loans, and since that time, 20 loans have been repaid in full. There have been no losses to the trust since issuance. The largest 15 loans in the pool represented 67.1% of the outstanding balance at March 2013. Of those loans, 14 are reporting YE2011 or YE2012 figures with a weighted-average DSCR of 1.45x and a weighted-average net cash flow (NCF) growth of 6.76% since issuance. The pool is diverse, with a good mix of collateral by property type and geographic location. In addition, there are two fully-defeased loans, representing 1.45% of the pool balance as of March 2013.

There were ten loans on the servicer’s watchlist as of the March 2013 remittance report, representing 9.38% of the pool. For the eight loans on the watchlist reporting current NCF figures, the weighted-average DSCR was 0.83x and the weighted-average NCF change from issuance was -39.5%. Although the performance overall has declined, it is worth noting that the two largest loans on the watchlist, Prospectus ID #16 (Sunpark Plaza), which represents 2.44% of the pool, and Prospectus ID #18 (Pacific Industrial Portfolio), which represents 1.14% of the pool, have both seen occupancy improvements in the past year that should contribute to performance improvements in the near term. Prospectus ID #16 is scheduled to mature in June 2013 and the servicer advised in March 2013 that the sponsor, who acquired the property in 2011 with an equity contribution of approximately $2 million at close, intends to repay the loan in full at maturity.

The fourth-largest loan in the pool, Prospectus ID #4 (Marriott Pooled Senior Loan) has been in special servicing since 2009. The loan is secured by a five-property hotel portfolio located in the Greater Toronto Area. The loan consists of two pari passu A-notes and a subordinate, non-securitized B-note. The A-1 note is held in the subject trust and the A-2 note is held in the Merrill Lynch Financial Assets Inc., Series 2006-Canada 20 trust. The loans transferred to special servicing when the borrower requested a modification because of declining cash flows at the properties and a property improvement plan (PIP) that was set forth by the franchisor and expected to cost approximately $3.5 million over the next two years. The special servicer granted forbearance in 2010 and the PIP was completed on all five properties by the spring of 2012. The special servicer reported in April 2013 that the sponsor was pursuing a sale of the properties which would result in a full repayment to the A-1 and A-2 notes. The servicer currently expects the sale to occur this year. The outlook is consistent with the DBRS viewpoint since the loan’s transfer to special servicing, as the portfolio has continued to exhibit relatively healthy occupancy and cash flow statistics over the past few years. The YE2012 DSCR on the A-notes was 1.36x, with a whole-loan DSCR of 0.82x.

For a complete discussion of the DBRS viewpoint, including detailed information on the largest loans in the pool, the loan in special servicing and the loans on the servicer’s watchlist, please see the March 2013 monthly surveillance report for this pool, which will be published shortly.

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 and CMBS North American Surveillance Methodology, which can be found on our website under Methodologies.