DBRS Upgrades Nine Classes and Confirms Six Classes of Merrill Lynch Financial Assets Inc., Series 2005-Canada 16

DBRS has today upgraded the ratings of the following nine classes of Commercial Mortgage Pass-Through Certificates, Series 2005-Canada 16, issued by Merrill Lynch Financial Assets Inc., Series 2005-Canada 16 (MLFA) as follows:

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

Additionally, DBRS has confirmed the ratings on the six remaining classes in the transaction as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class XC at AAA (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)

DBRS does not rate the $4.6 million first loss piece, Class M. All trends are Stable.

The rating actions follow continued pool performance and repayment of maturing loans. Thirty-six of the original 48 loans remain in the pool for a collateral reduction of 43.6% since issuance. Six loans in the top 15, representing 41.0% of the current pool balance, are sponsored by DBRS-rated entities, such as RioCan Real Estate Investment Trust (rated BBB (high) by DBRS), Calloway Real Estate Investment Trust (rated BBB by DBRS), First Capital Realty Inc. (rated BBB (high) by DBRS) and H&R Real Estate Investment Trust (rated BBB by DBRS). Two loans, representing 2.2% of the current pool balance, are fully defeased. The deal has a weighted-average debt service coverage ratio (DSCR) of 1.91 times (x), a weighted-average loan-to-value of 55.2% and a weighted-average net cash flow growth for loans in the top 15 of 33.2% as of the May 2014 remittance; this reflects strong cash flow improvement and healthy credit metrics for the pool overall.

There are currently no loans in special servicing and three loans on the servicer’s watchlist, representing 2.1% of the current pool balance. The largest of these three is 165 Ste. Madeleine (Prospectus ID#27, 1.1% of the current pool balance), which is secured by a grocery-anchored retail mall in Cap-de-la-Madeleine, Québec. The loan was placed on the watchlist for a low DSCR, which was -1.09x for YE2012. The decline in cash flow was reportedly a result of low occupancy. As of October 2013, the property was 51.4% occupied, down from 87% at issuance. According to the December 2013 servicer’s site inspection, the borrower has invested in the property through renovations aimed at modernizing the interior and exterior of the building; however, several items of deferred maintenance that were present at previous inspections remained outstanding. The two smallest watchlist loans represent just 1.0% of the current pool balance combined and were flagged for poor property quality. Both loans are performing well and have experienced positive cash flow growth since issuance. None of these loans have been delinquent.

DBRS maintains investment-grade shadow ratings on three loans in the transaction, which collectively represent 28.7% of the current pool balance. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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 85.9% 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 June 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 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.