DBRS Upgrades 6 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 20

DBRS has today upgraded six classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 20, as follows:

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

In addition, DBRS has confirmed the remaining classes:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (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 8.26% of the pool as of the March 2013 remittance report. The shadow ratings were confirmed as part of these rating actions.

These rating actions are a reflection of the pool’s overall strong performance, which had a weighted-average debt service coverage ratio (DSCR) of 1.70 times (x) and a weighted-average debt yield of 13.6%, with collateral reduction of 28.7% since issuance as of the March 2013 remittance report. The transaction closed in 2006 with 66 loans and since that time, 17 loans have been repaid in full. There have been no losses to the trust since issuance. The largest 15 loans in the pool represented 70.2% of the outstanding balance at March 2013. Of the 14 non-defeased loans in the Top 15, all are reporting YE2011 or YE2012 figures with a weighted-average DSCR of 1.70x and a weighted-average net cash flow (NCF) growth of 20.3% since issuance. The pool is geographically diverse, with approximately 50% of the collateral located in urban or light urban markets. In addition, there are five fully defeased loans in the pool, representing 5.23% of the pool balance.

There were five loans on the servicer’s watchlist as of the March 2013 remittance report, representing 6.05% of the pool, with a weighted-average DSCR of 1.31x and a weighted-average NCF change from issuance of 2.96%. The largest loan on the watchlist is Prospectus ID #11 (AltaLink Place), which represents 3.66% of the pool and is on the watchlist for a decline in occupancy to 72% in May 2012 from 100% at YE2011. The occupancy decline was the result of the departure of the property’s largest tenant; however, the servicer reported in April 2013 that recent leasing activity had brought the property to approximately 95% leased as of March 2013.

The seventh largest loan remaining in the pool, Prospectus ID #8 (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-2 note is held in the subject trust and the A-1 note is held in the Merrill Lynch Financial Assets, Inc., Series 2006-Canada 19 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-1 and A-2 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 CMBS Surveillance Methodology, which can be found on our website under Methodologies.