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

DBRS Limited (DBRS) has today upgraded the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2006-Canada 20 (the Certificates) issued by Merrill Lynch Financial Assets Inc., 2006-Canada 20:

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

In addition, DBRS has confirmed the following classes:

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

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

The rating upgrades reflect the overall strength of the pool, which has experienced a collateral reduction of 38.0% since issuance as a result of scheduled loan amortization and loan repayment. At issuance, the pool consisted of 66 fixed-rate loans secured by 93 multifamily and commercial properties. As of the February 2015 remittance, 45 loans remain in the pool with an aggregate outstanding principal balance of $369.2 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.98 times (x) and 15.2%, respectively, based on the most recent year-end reporting available for the individual loans. In addition, six loans, representing 11.9% of the pool balance, are fully defeased as of the February 2015 remittance. One loan, representing 0.4% of the current pool balance, is scheduled to mature on October 1, 2015, and this loan has an exit debt yield of 15.1%.

As of the February 2015 remittance, there are six loans on the servicer’s watchlist, representing 13.5% of the current pool balance, three of which individually represent more than 1.0% of the current pool balance. Two of the loans on the servicer’s watchlist are highlighted below.

Heritage Square (Prospectus ID#2, representing 9.2% of the current pool balance) is secured by a suburban office building located in a southern Calgary neighbourhood known as Acadia. The loan was added to the servicer’s watchlist as a result of an upcoming lease expiration for the largest tenant at the property, representing 63.2% of the net rentable area (NRA). The servicer has confirmed that the largest tenant, AMEC Americas Ltd. (AMEC Americas), will not renew its lease upon expiration in August 2015. The borrower has identified a replacement tenant, WorleyParsons Ltd., to assume a majority of the space being vacated by AMEC Americas on a lease commencing in April 2016. Another major tenant at the property is Credit Union Central of Alberta, which represents 28.5% of NRA and has a lease scheduled to expire in October 2024. The loan has historically exhibited strong performance, with a YE2013 DSCR reported at 2.84x compared with the YE2012 DSCR of 2.65x. The loan was modeled with an elevated probability of default to reflect the anticipated cash flow decline following AMEC Americas’ departure.

Places Jacques Cartier Office (Prospectus ID#32, representing 1.1% of the current pool balance) is secured by a mid-rise office property south of the Ville-Marie Expressway near City Hall in Old Montréal. The loan is currently on the watchlist because of a low DSCR, which was reported to be 1.08x for YE2013, a decline from a YE2012 DSCR of 1.19x. According to the YE2013 operating statement analysis report, there has been a 16.6% increase in overall operating expenses, namely resulting from increased utilities and property insurance. In addition, janitorial expenses were reported for the first time in recent reporting periods. The property’s occupancy has been stable at 86.6%, according to the January 2014 rent roll, consistent with the YE2012 occupancy of 87.0%. The three largest tenants at the property are Société Immobilière du Québec (59.2% of NRA, expiring in November 2015), Le Chariot Métiers d’art (16.2% of NRA, expiring in April 2018), and ERAI Canada Inc. (7.9% of NRA, expiring in January 2016). DBRS has followed up with the servicer regarding a leasing update for the Société Immobilière du Québec tenant and will continue to monitor this loan.

DBRS maintains investment-grade shadow ratings on Westview Village MHC (Prospectus ID#4, representing 6.9% of the current pool balance) and CLSC Sherbrooke (Prospectus ID#21, representing 2.3% 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. The February 2015 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 (January 2015), which can be found on our website under Methodologies.