DBRS Confirms Ratings of Merrill Lynch Financial Assets Inc., Series 2003-Canada 10

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2003-Canada 10 (the Certificates) issued by Merrill Lynch Financial Assets Inc., Series 2003-Canada 10:

-- Class XC-1 at AAA (sf)
-- Class XC-2 at AAA (sf)

All trends are Stable. In conjunction with the confirmations, DBRS has discontinued the ratings for Class J and K, as these classes have been fully repaid according to the May 2015 remittance.

The rating confirmations on the interest-only certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the interest-only certificate’s position within the transaction payment waterfall when determining the appropriate rating. There are two loans remaining that have a combined trust balance of $5,003,771. The loans exhibit a weighted-average debt service coverage ratio (DSCR) of 1.24 times (x), based on the most recent year-end reporting available. Additionally, the loans exhibit strong credit metrics with loan-to-value ratios under 36% and low leverage points on a loan per square foot basis. Both loans benefit from full recourse to their respective sponsors.

The largest loan in the pool (Prospectus ID#16, representing 97.0% of the current balance) is secured by a flex industrial/office property in the Foothills Industrial Park of Calgary. The loan is scheduled to mature on July 1, 2016, and is 98.2% occupied, according to the January 2014 rent roll. Combined, the two largest tenants occupy 95.2% of the net rentable area (NRA), and their leases expire well beyond loan maturity. The YE2013 DSCR was 1.24x, remaining in line with the YE2012 DSCR of 1.27x. This loan benefits from full recourse to H&R REIT, which DBRS rates BBB (high).

The remaining loan (Prospectus ID#34, representing 3.0% of the current pool balance) is secured by an industrial property in Markham, Ontario. The loan is scheduled to mature on August 1, 2015, and is fully occupied, according to the April 2014 rent roll, with one tenant’s lease having expired in March 2015. While the tenant’s lease has expired, the remaining 83.4% of the NRA is scheduled to expire past loan maturity. The YE2013 DSCR was reported at 1.15x, an improvement from the YE2012 DSCR of 0.71x, as the loan was previously on the servicer’s watchlist because of a period of decreased occupancy in 2012. DBRS considered the impact on operating cash flows as a result of the tenant’s lease expiration in March 2015 and has requested a leasing update from the servicer.

For additional detail on the DBRS viewpoint for this transaction, and for details on the remaining loans in the pool, please see the May 2015 Monthly CMBS Surveillance Report for this transaction, which will be published shortly.

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.

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

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.