DBRS Upgrades Two Classes and Confirms 11 Classes of Merrill Lynch Financial Assets Inc., Series 2006-Canada 18

DBRS has today upgraded the following two classes of Commercial Mortgage Pass-Through Certificates, Series 2006-Canada 18, issued by Merrill Lynch Financial Assets Inc., Series 2006-Canada 18 (MLFA) as follows:

-- Class B to AAA (sf) from AA (sf)
-- Class C to AA (sf) from A (sf)

DBRS has also today confirmed the ratings of the 11 remaining classes in the transaction as follows:

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

The pool has experienced a 40.6% collateral reduction since issuance and the outstanding loans continue to amortize as expected. As of the May 2014 remittance report, there is limited YE2013 reporting available for the loans in this pool. Loans representing just 31.3% of the current pool balance are reporting YE2013 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 two (8.6% of the current pool balance) are reporting YE2013 financials. The largest 15 loans represent 66.2% of the current pool balance and have exhibited stable performance, with a weighted-average debt service coverage ratio (DSCR) of 1.51 times (x), based on the most recent year-end reporting available for the individual loans as of the May 2014 remittance report. Loans representing 55.5% of the current pool balance, including nine of the largest 15 loans, benefit from full or partial recourse to their respective sponsors. Additionally, one loan, representing 2.17% of the current pool balance, is fully defeased.

There are 14 loans on the servicer’s watchlist, representing 14.56% of the current pool balance, reporting a weighted-average DSCR of 0.91x and a weighted-average net cash flow change from issuance of -26.10%, based on the most recent year-end reporting available for the individual loans as of the May 2014 remittance report. The largest loan of concern on the servicer’s watchlist is 1500 Royal York (Prospectus ID#28, 2.07% of the current pool balance) and has been flagged for property deficiencies and low DSCR due to low historical property occupancy. Per the November 2013 servicer’s site inspection, the property was 70.9% occupied, down from 83.0% at issuance, and there were several deferred maintenance items noted. Property deficiencies have been present for an extended period of time and the borrower has only recently begun to address some of the issues. Out of the 14 loans currently on the servicer’s watchlist, ten have full or partial recourse to their respective sponsors, including the largest loan on the watchlist. DBRS continues to monitor the watchlist on a monthly basis.

DBRS maintains an investment-grade shadow rating on two loans in the transaction, representing 3.28% of the current pool balance. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

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 the 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 North American CMBS Surveillance Methodology (November 2012), which can be found on our website under Methodologies.