DBRS Confirms 14 Classes of Merrill Lynch Financial Assets Inc., Series 2005-Canada 16

DBRS Limited (DBRS) has today confirmed the ratings of the following 14 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 A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf
-- Class XC at AAA (sf)
-- Class D-1 at AA (high) (sf)
-- Class D-2 at AA (high) (sf)
-- Class E-1 at AA (sf)
-- Class E-2 at AA (sf)
-- Class F at A (low) (sf)
-- Class G at BBB (high) (sf)
-- Class H at BB (high) (sf)
-- Class J at BB (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)

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

The rating confirmations reflect the continued stable performance of this transaction. As of the March 2015 remittance, 35 of the original 48 loans remain in the pool with an aggregate trust balance of approximately $226.1 million, representing a collateral reduction of 50.7% since issuance. Two loans, representing 2.3% of the current pool balance are fully defeased, while three loans in the top 15, representing 31.4% of the current pool balance are sponsored by entities rated investment-grade by DBRS, including RioCan Real Estate Investment Trust (BBB (high)), First Capital (BBB (high)) and H&R REIT (BBB (high)). All outstanding loans are all scheduled to mature by July 1, 2015. According to the March 2015 remittance report, the pool has a weighted-average debt service coverage ratio of 2.08 times (x) and a weighted average debt yield of 18.9%.

DBRS maintains investment-grade shadow ratings on two loans in the transaction, RioCan Mega Centre Notre Dame (Prospectus ID#3, 12.6% of the current pool) and Rona Distribution Center (Prospectus ID#7, 8.3% of the current pool balance). DBRS has today confirmed that the performance of these loans is consistent with investment-grade loan characteristics.

As of the March 2015 remittance report, there are eight loans on the servicer’s watchlist, representing 17.5% of the current pool balance. Five of the eight loans on the watchlist, representing 15.2% of the pool combined, are being flagged for upcoming maturity and another loan representing 0.5% of the current pool balance is being flagged for minor deferred maintenance. Together, these six loans have a weighted-average debt service coverage ratio (DSCR) and weighted-average debt yield of 1.85x and 14.5%, respectively. The remaining two loans on the watchlist are highlighted below.

165 Ste. Madeleine (Prospectus ID#27, 1.3% of the current pool balance) is secured by a 117,833 sf grocery-anchored retail property located in Cap-de-la-Madeleine, Quebec. The loan was placed on the watchlist in October 2010 due to a low DSCR. The YE2013 DSCR was reported to be -0.24x compared to -1.09x at YE2012. The property was 51% occupied according to a rent roll dated October 2014, down from 87% at issuance. The largest three tenants include Metro Richelieu (26% of the net rentable area (NRA), March 2022 lease expiration), Dollarama (7.3% of the NRA) and Familiprix (6.2% of the NRA, August 2017 lease expiration). According to the servicer, Dollarama has renewed its lease and expanded its operations; however, the terms of this agreement have not yet been made available. There are currently 14 vacant units at the property, the largest space constituting approximately 15.0% of the NRA. The borrower has previously been unresponsive to the servicer’s requests for updated property performance information. This loan matures on April 1, 2015, and due to the negative cash flow the loan was modelled with elevated probability and loss given default to reflect the risk surrounding its upcoming refinance deadline.

Vaughn Industrial (Prospectus ID#40, 0.6% of the current pool balance) is secured by a 41,250 sf industrial property, which was constructed in 1970 and is located in Vaughn, Ontario. The loan was previously on the watchlist due to items of deferred maintenance, however, was most recently flagged due to a decrease in the DSCR caused by a brief period of vacancy. Former tenants Vallan (54% of the NRA) and AAP Steel (46% of the NRA) vacated their spaces at the property in January 2013 and April 2013, respectively. Granite and Marble (98% of the NRA) has reportedly since filled the vacant spaces, assuming occupancy incrementally through YE2013. According to the servicer, the new tenant was expected to have signed a long term lease; however there has not been an updated rent roll provided that would indicate a lease beyond YE2013 was ever executed. A June 2014 servicer site inspection noted that the property was 100% occupied and the inspector also noted that the borrower had renovated the main office, the mezzanine office and added a drive in loading ramp from the time of the last annual site inspection. The loan is scheduled to mature as of May 1, 2015 and benefits from a low loan psf of $35.

The DBRS analysis included an in-depth review of the 15 largest loans in the transaction, as well as the loans on the servicer’s watchlist and loans currently shadow-rated due to investment-grade characteristics, which collectively represent 87.0% 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 March 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.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.