DBRS Confirms All Classes of Merrill Lynch Financial Assets Inc., Series 2005-Canada 15

DBRS has today confirmed the ratings of all classes of Merrill Lynch Financial Assets Inc., Series 2005-Canada 15 Commercial Mortgage Pass-Through Certificates, Series 2005-Canada 15, as follows:

-- Class A-2 at AAA (sf)
-- Class XC-1 at AAA (sf)
-- Class XC-2 at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D-1 at BBB (high) (sf)
-- Class D-2 at BBB (high) (sf)
-- Class E-1 at BBB (sf)
-- Class E-2 at BBB (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)

All the trends are Stable.

The rating confirmations reflect the single-tenant concentration and refinance risk with regards to nine loans, representing 29.6% of the current pool balance, in the midst of overall healthy pool performance and improving credit support to the bonds following collateral reduction of approximately 51.1% since issuance. As of the September 2014 remittance report, 18 loans have paid out of the pool since issuance, leaving 40 loans remaining in the transaction. All of the outstanding loans are scheduled to mature by March 31, 2015, and have a weighted-average debt yield of 14.4%. The transaction also benefits from defeasance collateral, as seven loans, representing 19.8% of the current pool balance, are fully defeased. The largest 15 loans in the transaction have a weighted-average debt service coverage ratio (DSCR) and weighted-average debt yield of 1.71 times (x) and 14.2%, respectively.

As of the September 2014 remittance report, there are 22 loans on the servicer’s watchlist, representing 43.0% of the current pool balance. However, 19 of these loans have been flagged due to their upcoming maturities. There are no loans in special servicing.

The transaction has specific exposure to RONA inc. (RONA), as nine loans in the pool are secured by single-tenant retail properties currently or formerly occupied by a RONA home and garden retail store. Although the loans benefit from strong sponsorship in H&R Real Estate Investment Trust (rated BBB (high) by DBRS), they are neither cross-collateralized nor cross-defaulted, and are not structured with a recourse guaranty. DBRS recognizes there is elevated risk associated with the concentration of single-tenant properties, specifically when they are concentrated with one tenant, RONA, which DBRS currently rates BB (high) with a Negative trend. The average size of the assets securing these loans is 108,165 sf, which is considered quite large, given their single-tenant format. The weighted-average leverage point on a per-square-foot basis is $67.21. The properties are located in various cities throughout Ontario and Québec, and the RONA leases are not scheduled to expire until November 2019, five years past the respective loan maturities. In June 2013, RONA announced 11 store closings throughout Ontario and British Columbia, scheduled to occur in October and December 2013. The Windsor, Ontario property that secures Prospectus ID#17 in this transaction was included in this closure list. This loan represents 3.7% of the current pool balance. The property is currently dark, following the tenant’s departure in October 2013; however, RONA continues to pay rent in accordance with its original lease terms. These nine loans are scheduled to mature in November 2014 and combined have a current weighted-average DSCR and debt yield of 1.66x and 13.7%, respectively.

Additionally, as part of this review, DBRS analyzed the largest 15 loans in the pool, the three loans on the servicer’s watchlist and the loans secured by RONA retail properties, which comprise approximately 76.2% 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, specially serviced loans and loans on the servicer’s watchlist. The September 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.

Note:
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.