DBRS Confirms Ratings of Merrill Lynch Financial Assets Inc., Series 2007-Canada 21

DBRS has today confirmed the ratings of the Merrill Lynch Financial Assets Inc., Series 2007-Canada 21 transaction as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (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 rating confirmations reflect the pool’s continued stable performance as the remaining loans in the transaction are reporting a weighted-average debt service coverage ratio (DSCR) of 1.45 times (x) and a weighted-average debt yield of 10.11%, based on the most recent year-end reporting available. As of the June 2014 remittance report, there are 32 of the original 41 loans remaining in the pool, with overall collateral reduction of 25.6% since issuance. The transaction is concentrated as the largest 15 loans represent 77.1% of the current pool balance. These loans are reporting a weighted-average DSCR and debt yield of 1.37x and 10.9%, respectively. There are currently no defeased loans in the pool.

There are six loans on the servicer’s watchlist, representing 12.3% of the current pool balance. The largest two loans on the servicer’s watchlist are highlighted below.

The 5055 Satellite Drive loan (Prospectus ID #5), which represents 5.0% of the current pool balance, is secured by a flex industrial/office property in Mississauga, Ontario, just south of the Toronto Pearson International Airport. The loan was added to the servicer’s watchlist for a decline in occupancy, which was reported as low as 35% in 2011 compared with 100% in 2009. As a result, the YE2012 DSCR decreased to 0.22x. According to the March 2014 rent roll, the borrower signed two new tenants for approximately 39% of the net rentable area (NRA), on ten-year leases that commenced in December 2013 and February 2014, respectively. Combined with previous positive leasing activity, the occupancy rate is now 96.0%. While two tenants occupying 27.0% of the NRA have lease expirations by YE2014, property performance is expected to stabilize given the projected increase in rental revenue.

The 1450-1550 Appleby Line loan (Prospectus ID #19), which represents 2.7% of the current pool balance, is secured by a flex industrial/office property in Burlington, Ontario. The loan was added to the servicer’s watchlist after the former single tenant, Siemens AG (Siemens), downsized its footprint at the subject when its previous lease expired in February 2013. As a result, the YE2013 DSCR declined to 0.31x compared with 1.86x at YE2012. Siemens now occupies the warehouse space at the subject, totalling 46.0% of the NRA on a lease expiring in February 2017. According to the borrower, the Burlington submarket is soft; however, Colliers Canada is only reporting a vacancy rate of 8.1%. The borrower also recently completed renovations of the vacant office space, making it more functional for multiple tenants. Reportedly, Siemens is interested in one of the four newly created spaces; however, no lease has been executed at this time. The loan remains current and the property is being marketed for lease by Blair Blanchard Stapleton Realty, which is considered an established commercial brokerage firm in the Burlington market.

DBRS maintains an investment-grade shadow rating on one loan in the transaction, representing 2.63% of the current pool balance. DBRS has today confirmed that the performance of this loan 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. The June 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.