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

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

-- Class C to AAA (sf) from AA (sf)
-- Class D-1 to AA (sf) from A (sf)
-- Class D-2 to AA (sf) from A (sf)
-- Class E-1 to A (high) (sf) from A (low) (sf)
-- Class E-2 to A (high) (sf) from A (low) (sf)
-- Class F to A (low) (sf) from BBB (sf)
-- Class G to BBB (sf) from BB (sf)
-- Class H to BBB (low) (sf) from BB (low) (sf)
-- Class J to BB (sf) from B (high) (sf)
-- Class K to B (high) (sf) from B (sf)

Additionally, DBRS has confirmed the ratings of the six 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 increased credit enhancement to the bonds since issuance as a result of loan repayment and amortization. As of the March 2014 remittance report, approximately 45.5% of the collateral has been reduced since issuance. Additionally, one loan, representing 1.1% of the current pool balance, is defeased.

In the next year, 30 of the remaining 32 loans in the transaction, representing 92.4% of the current pool balance, are scheduled to mature. Excluding defeasance collateral, these loans have a weighted-average debt service coverage ratio (DSCR) of 1.74 times (x) and a weighted-average exit debt yield of 16.4%. Given the strong credit metrics of these loans, DBRS believes they have a high likelihood of refinancing.

The largest loan in the pool, 5000 Yonge Street Senior Interest (Prospectus ID#1, 31.7% 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 60.7% of the net rentable area (NRA) and have long-term leases through April 2019. Based on YE2012 reporting, performance remains strong, with a DSCR of 1.8x, and, according to the March 2014 rent roll, the property is 95.9% occupied. Approximately 8.9% of the NRA is available for sublease among three spaces, with 75% of this space becoming available for direct lease throughout 2014. 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 International, Inc. self-storage properties in Ontario. DBRS has 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 in the deal, representing 7.8% of the current pool balance, secured by multifamily properties throughout Windsor. These six loans are separated into two distinct sets of cross-collateralized and cross-defaulted groups of three loans each that share a common sponsor. As of March 2014, one portfolio (Prospectus ID#19, ID#25 and ID#47) reported a weighted-average DSCR of 1.33x, a weighted-average occupancy rate of 97.0% and a weighted-average rental rate per unit of $815. The other portfolio (Prospectus ID#21, ID#24 and ID#43) reported these figures at 1.08x, 94.5% and $865, respectively. According to Canada Mortgage and Housing Corporation, Windsor multifamily properties reported a total vacancy rate of 5.9%, with average rental rates at $699 per unit.

There are no loans in special servicing, and there are four loans on the servicer’s watchlist, representing 17.8% of the current pool balance. These loans remain current and are largely being monitored for low DSCRs 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 94.5% 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 March 2014 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.