DBRS Upgrades Eight and Confirms Five Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 20

DBRS has today upgraded eight classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 20, as follows:

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

In addition, DBRS has confirmed the remaining classes:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)
-- Class XC at AAA (sf)

All classes have Stable trends.

These rating actions reflect the pool’s overall health. The pool’s weighted-average debt service coverage ratio (DSCR) is 1.59 times (x) and the weighted-average debt yield is 11.20%, as of the March 2014 remittance. The deal has experienced a 36.4% collateral reduction since issuance as a result of amortization and repayments. The transaction closed in 2006 with 66 loans and since that time, 21 loans have been repaid in full. There have been no losses to the trust since issuance. The transaction is concentrated by loan size, as the largest 15 loans represent 72.7% of the current pool balance as of the March 2014 remittance. Of the 13 non-defeased loans in the top 15, 12 are reporting YE2011 or YE2012 figures with a weighted-average DSCR of 1.98x and a weighted-average net cash flow (NCF) growth of 34.2% since issuance. In addition, there are six fully defeased loans in the pool, representing 12.02% of the pool balance.

Since the last surveillance review, one of the original top ten loans repaid from the trust. Marriott Pooled Senior Loan (Prospectus ID#8) was previously in special servicing following the borrower’s request for a modification of the loan while PIP work was completed. The loan was repaid with the July 2013 remittance.

Five loans are currently flagged for the servicer’s watchlist, representing 6.14% of the pool, with a weighted-average DSCR of 1.00x and a weighted-average NCF decline from issuance of 21.8%. The largest loan on the watchlist is Dundee Calgary - Altalink Place (Prospectus ID#11, 4.0% of the current pool balance). The loan is secured by a mid-rise office building in the western portion of downtown Calgary. The loan was placed on the watchlist for a decline in occupancy after the property’s largest tenant vacated in May 2012, leaving the building approximately 30.0% vacant. A portion of the space has been released, as Compton Petroleum Corporation took occupancy of 23.7% of the NRA beginning June 1, 2013, increasing the property's occupancy to 95.5% as of the August 2013 rent roll. All in-place leases extend beyond the loan's scheduled maturity date.

There are two loans shadow-rated investment grade by DBRS in the pool, representing a 9.07% of the pool combined as of the March 2014 remittance. The shadow ratings were confirmed as part of the above-noted rating actions.

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, the loans in special servicing and the loans on the servicer’s watchlist. The March 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.