DBRS Confirms 13 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 18

DBRS has today confirmed the ratings of 13 classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 18 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 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)

All trends are Stable.

Five loans have matured and repaid in full since the last DBRS annual surveillance review in June 2012 and in total, 26 of the original 83 loans have paid out of the pool. As a result of the loan repayments and amortization, the pool has experienced a cumulative collateral reduction of 38.9% since issuance.

As of the June 2013 remittance report, there is limited YE2012 reporting available for the loans in this pool. Only 33 loans, representing 42.1% of the current pool balance, are reporting YE2012 financials, which DBRS views to be a low collection rate considering that six months have passed since the year-end period. With respect to the largest 15 loans in the pool, only eight (29.4% of the current pool balance) are reporting YE2012 financials. The largest 15 loans represent 66.2% of the current pool balance and have shown stable performance, with a weighted-average debt service coverage ratio (DSCR) of 1.48 times (x) and weighted-average debt yield of 12.6%, based on the most recent year-end reporting available for the individual loans as of the June 2013 remittance report. The transaction benefits from 55.52% of the current pool balance having full or partial recourse to the respective loan sponsors. Additionally, one loan, representing 2.2% of the current pool balance, is fully defeased.

There are 15 loans on the servicer’s watchlist, representing 14.0% of the current pool balance, reporting a weighted-average DSCR of 1.03x and a weighted-average net cash flow change from issuance of -26.9%, based on the most recent year-end reporting available for the individual loans as of the June 2013 remittance report. Seven loans on the servicer’s watchlist (6.90% of the current pool balance) are reporting YE2012 financials and one loan (2.1% of the current pool balance) has not reported year-end financials since 2010. This is the largest loan on the servicer’s watchlist, Prospectus ID #18 (1500 Royal York). The loan is secured by a shadow-anchored retail centre in northwest Toronto. The loan is on the watchlist for a low DSCR as a result of low occupancy, in addition to some deferred maintenance issues. The property has struggled with achieving a stabilized occupancy rate since 2009 when it was at 77.5% and it has continued to fall, reaching 72.3% in YE2011. According to the servicer site inspection, there are several deferred maintenance issues that remain unremedied. DBRS has outstanding questions and requests to the servicer and will continue to monitor the loan closely.

DBRS maintains an investment-grade shadow rating on two loans in the transaction, representing 3.3% of the current pool balance. DBRS has today confirmed that the performance of these loans remain 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 transaction, 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.