DBRS Upgrades Three Classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8

DBRS has today upgraded three classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8 as follows:

-- Class H to AAA (sf) from AA (sf)
-- Class J to AA (low) (sf) from A (sf)
-- Class K to A (low) (sf) from BBB (low) (sf)

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

-- Class D at AAA (sf)
-- Class E at AAA (sf)
-- Class F at AAA (sf)
-- Class G at AAA (sf)
-- Class X-1 at AAA (sf)
-- Class X-2 at AAA (sf)

DBRS does not rate the $8.2 million first loss piece, Class L. All trends are Stable

The rating upgrades reflect the strong performance of the overall pool and the favourable credit metrics of the underlying loans. Since issuance in November 2002, 47 of the original 70 loans have been repaid in full, resulting in a collateral reduction of approximately 93.0% since issuance. Additionally, three loans, representing 8.5% of the pool balance, are defeased, and 19 loans, representing 83.6% of the pool balance, are structured as fully amortizing loans. Based on YE2012 financial reporting, the transaction has a weighted-average debt service coverage ratio (DSCR) of 1.89 times (x) and a weighted-average debt yield of 40.9%.

There are no loans in special servicing and two loans on the servicer’s watchlist, representing 11.1% of the current pool balance. Both loans have been on the servicer’s watchlist for several years, yet have remained current. Privacy Protected loan (Prospectus ID#35) is secured by an enclosed shopping mall in Smith Falls, Ontario, and has consistently suffered from cash flow shortfalls due to unaccounted for R&M and payroll expenses. Privacy Protected loan (Prospectus ID#56) is secured by an independent living facility in Cobourg, Ontario, and has experienced a cash flow decline in the past two years due to a declining occupancy rate. While both loans have not reported a DSCR above 1.0x for at least two years and their respective debt yields are well below the pool average, the combined unpaid principal balance of both loans is $3.6 million, well below the $8.2 million balance of the unrated Class L. Additionally, both loans are sponsored by experienced institutional borrowers, which each provide full recourse for their respective loan.

As part of its review, DBRS analyzed the top 15 loans and the loans on the servicer’s watchlist, which comprise approximately 84.9% of the current pool balance.

DBRS has applied a net cash flow stress scenario across all the loans in the pool and the resulting DBRS required credit enhancement levels, when compared with the current credit enhancement levels to the bonds, warrant the rating upgrades.

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 January 2014 Monthly 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 is 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 Methodology (November 2012), which can be found on our website under Methodologies.