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

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2007-Canada 21 (the Certificates) issued by MLFA 2007-CAN21:

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. DBRS does not rate the first loss piece, Class M.

The rating confirmations reflect the overall stable performance of the pool, which has experienced a collateral reduction of 27.4% since issuance as a result of scheduled loan amortization and loan repayment. At issuance, the pool consisted of 41 fixed-rate loans secured by 52 multifamily and commercial properties. As of the April 2015 remittance, 32 loans remain in the pool with an aggregate outstanding principal balance of $279.7 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 1.52 times (x) and 12.0%, respectively, based on the most recent year-end reporting available for the individual loans. In addition, two loans, representing 2.5% of the pool balance, are fully defeased. There are no loans in special servicing and five loans on the servicer’s watchlist, representing 11.5% of the current pool balance. Three of the most pivotal loans on the watchlist are highlighted below.

The 5055 Satellite Drive loan (Prospectus ID #5, representing 5.0% of the current pool balance) is secured by a flex industrial/office property in Mississauga, Ontario. The loan is on the servicer’s watchlist due to a decline in occupancy following the departure of two tenants that vacated their respective spaces upon their lease expirations in 2014 and 2015. The tenants had combined to occupy 26.9% of the Net Rentable Area (NRA). Bell Mobility (18.9% of NRA) and Globalive Wireless (8.0% of NRA) expired in August 2014 and January 2015, respectively, and as a result of each tenant’s departure from the subject, occupancy declined to 63.7% as of March 2015 compared with 96.0% as of the March 2014 rent roll. According to the servicer, the borrower has stated that they are continuing to work on obtaining long term leases for these two units and DBRS has followed up with the servicer in regards to a leasing update. According to the March 2014 rent roll, the borrower signed two new tenants for approximately 39% of the NRA, on ten-year leases that commenced in December 2013 and February 2014, respectively. DBRS considered the current performance of this loan by recognizing the leases that commenced in December 2013 and February 2014, as well as the negative impact on future operating cash flows from the departure of Bell Mobility and Globalive Wireless. Although the YE2013 DSCR remains below-threshold at 0.58x, the loan benefits from full recourse to the sponsor.

The 1450-1550 Appleby Line loan (Prospectus ID #19, representing 2.6% 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, 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, totaling 46.0% of the NRA on a lease expiring in February 2017. The primary servicer has indicated that as a result of the completed renovations to convert the vacant area to four smaller office spaces in 2014, the borrower has been able to facilitate leasing as approximately 18,000 sq. ft. (16.2% of NRA) has been leased to new tenants. As a result of the leasing activity, the property is now 62.0% occupied, as of March 2015. The servicer has indicated that there are no new prospects for the remaining vacant units; however, the borrower continues to market the space. The property is attractive and well maintained, according to the April 2014 site inspection, and the office space is move-in ready subject only to reconfiguration required by tenant(s).

The Ouellette Place Portfolio loan (Prospectus ID #13, representing 3.1% of the current pool balance) is secured by a mixed-use (office and retail) property in Windsor, Ontario. The loan was added to the servicer’s watchlist after the YE2013 DSCR decreased due to an 11% increase in operating expenses throughout 2013; specifically repairs, maintenance and utilities expenses. However, the borrower has supplied the YE2014 financial information which shows that the YE2014 DSCR has improved to 1.10x compared with 0.96x at YE2013. In addition, operating expenses have returned to near historical levels. As a result, the servicer has noted that the loan will be removed from the watchlist. According to the March 2014 rent roll, the property was 89.2% occupied with the largest tenant, Deloitte & Touche, occupying 22.7% of the NRA, on a lease scheduled to expire in October 2015. DBRS has followed up with the servicer in regards to a leasing update for this tenant. The loan was modeled with an elevated probability of default to reflect the largest tenant’s upcoming lease expiration.

DBRS maintains an investment-grade shadow rating on the Maxxam Portfolio loan (Prospectus ID#20, representing 2.6% 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 April 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are North American CMBS Rating Methodology (March 2015) 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.