DBRS Upgrades 5, Confirms 11 Classes of Merrill Lynch Financial Assets Inc., Series 2004-Canada 14

DBRS has today upgraded the ratings of five classes of Merrill Lynch Financial Assets Inc., Series 2004-Canada 14 as follows:

-- Class C to AA (sf) from AA (low) (sf)
-- Class D-1 to A (sf) from A (low) (sf)
-- Class D-2 to A (sf) from A (low) (sf)
-- Class E-1 to A (low) (sf) from BBB (high) (sf)
-- Class E-2 to A (low) (sf) from BBB (high) (sf)

Additionally, DBRS has today confirmed the ratings of the 14 remaining classes in the transaction. DBRS does not rate the $5.1 million first loss piece, Class M. All trends are Stable.

The rating upgrades reflect the strong performance the transaction continues to exhibit, with 19 loans having been successfully repaid since issuance. Overall, the financial performance for the remaining 32 loans remains healthy, with a weighted-average debt service coverage ratio (DSCR) of 1.70 times (x) and a weighted-average debt yield of 16.2%. As of the April 2013 remittance report, the initial pool balance has been reduced by approximately 44.0%.

The largest loan in the pool, 5000 Yonge Street Senior Interest (Prospectus ID#1, 31.6% of the current pool balance), is secured by a Class A office property built in 2004 and located in the North York submarket of Toronto. The two largest tenants at the property represent 49.5% of the net rentable area (NRA) and have long-term leases through April 2019. Based on the YE2011 financials, performance has remained strong, with a DSCR of 1.71x, and, according to the January 2013 rent roll, the property is 96.0% occupied. Approximately 9.5% of the NRA is available for sublease among three spaces; however, the lease holders for these spaces do not have lease expirations until September 2014, with the latest lease expiration occurring in March 2017. DBRS shadow-rated this loan as an investment-grade loan at issuance. With this review, DBRS has confirmed the investment-grade shadow-rating associated with this loan.

In addition, DBRS shadow-rates 11 other loans in the pool as investment-grade loans, including a ten-loan crossed-collateralized and cross-defaulted portfolio secured by ten U-Haul self-storage properties in Ontario. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade characteristics.

The transaction has specific exposure to Windsor, Ontario, as there are six loans, representing 7.4% of the current pool balance, secured by multifamily properties throughout Windsor in the deal. These six loans are separated into two distinct sets of cross-collateralized and cross-defaulted groups of three loans each. As of October 2012, one portfolio (Prospectus ID#19, ID#25 and ID#47) reported a weighted-average DSCR of 1.33x, a weighted-average occupancy rate of 93.3% and a weighted-average rental rate per unit of $791. The other portfolio (Prospectus ID#21, ID#24 and ID#43) reported these figures at 1.08x, 89.0% and $863, respectively. According to Canada Mortgage and Housing Corporation, Windsor multifamily properties reported a total vacancy rate of 7.3%, with average rental rates at $695 per unit.

There are no loans in special servicing and there are four loans on the servicer’s watchlist, representing 8.5% of the current pool balance. These loans remain current but are being monitored for low DSCR and low occupancy rates.

As part of its review, DBRS analyzed the top 15 loans, the shadow-rated loans and the loans on the servicer’s watchlist, which comprise approximately 94.0% of the current pool balance.

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 and loans on the servicer’s watchlist. The April 2013 Monthly CMBS 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.

This rating in 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 (November 2012), which can be found on our website under Methodologies.