DBRS Confirms 15 Classes of Merrill Lynch Financial Assets Inc., Series 2007-Canada 21

DBRS has today confirmed all 15 rated classes of the Merrill Lynch Financial Assets Inc., Series 2007-Canada 21 transaction. The ratings were confirmed as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (high) (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 XC at AAA (sf)
-- Class XP-1 at AAA (sf)
-- Class XP-2 at AAA (sf)

All classes were confirmed with Stable trends.

The rating actions reflect the pool’s continued strong overall performance with a current weighted-average debt service coverage ratio (DSCR) of 1.41 times(x) and a weighted-average debt yield of 11.2%, based on the most recent year-end reporting available for the individual loans as of the June 2013 remittance report. There are 32 of the original 41 loans remaining in the pool, with a collateral reduction of 23.7% since issuance. The largest 15 loans represent 77.0% of the current pool balance, as of the June 2013 remittance report. These loans have displayed stable performance with a weighted-average net cash flow (NCF) growth of 10.9% since issuance and a weighted-average DSCR and debt yield of 1.50x and 11.5%, respectively. There are no defeased loans in the pool as of the June 2013 remittance report.

There are four loans on the servicer’s watchlist, representing 11.5% of the current pool balance, with a weighted-average DSCR of 0.83x and a weighted-average NCF change from issuance of -45.22%. The largest loan on the servicer’s watchlist is Prospectus ID #5 (5055 Satellite Drive), which represents 5.0% of the current pool balance. The loan is secured by a flex industrial/office property in the Toronto suburb of Mississauga, Ontario. The loan was added to the watchlist for a decline in occupancy and a low DSCR of 0.22x as of YE2012. Occupancy has fluctuated from 100.0% in 2009 to as low as 35.0% in 2011 to 64.0% in March 2013. The borrower has recently signed two new tenants for approximately 32% of the NRA, for ten-year leases that are expected to commence late in 2013 and early in 2014, respectively. This will raise the occupancy rate to 96% and the DSCR should subsequently begin to stabilize with the increase in rental revenue.

DBRS has removed the investment-grade shadow rating of one loan, representing 1.67% of the current pool balance. The loan was shadow rated investment-grade due to the credit quality of the largest tenant Sobeys Inc. (Sobeys), which is currently rated BBB by DBRS. The removal of the shadow rating is due to the uncertainty surrounding the Sobeys rating. DBRS placed Sobeys Under Review with Negative Implications on June 12, 2013, as a result of a proposed merger with Canada Safeway Limited. While the shadow rating has been removed, DBRS still considers the loan to be strong, based on its financial performance; as such, the shadow rating removal is considered credit neutral to the overall transaction. For more information on the recent rating action on Sobeys, please see the June 12, 2013, press release by clicking on the link under Related Research on the DBRS website, or under Associated Documents below.

DBRS maintains an investment-grade shadow rating on one loan in the transaction, representing 2.62% of the current pool balance. DBRS has today confirmed that the performance of that loan remains consistent with investment-grade loan characteristics.

For a complete discussion of the DBRS viewpoint, including detailed information on the largest loans in the pool, and the loans on the servicer’s watchlist, please see the June 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, which can be found on our website under Methodologies.