DBRS Upgrades Two Classes and Confirms Two Classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8

DBRS Limited (DBRS) has today upgraded the ratings of two classes of Merrill Lynch Financial Assets Inc., Series 2002-Canada 8 as follows:

-- Class J to AAA (sf) from AA (low) (sf)
-- Class K to AAA (sf) from A (low) (sf)

In addition, DBRS has confirmed the remaining two classes as follows:

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

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

The rating upgrades reflect the overall performance of the transaction. Since issuance in November 2002, of the original 70 loans, 52 loans have been fully repaid, resulting in a collateral reduction of 96.6%. The transaction also benefits from defeasance collateral as four loans, representing 21.2% of the current pool balance, are defeased. Based on the most recent financials, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.69 times (x) and a WA debt yield of 60.5%. This compares with the YE2014 WA DSCR and WA debt yield of 1.80x and 56.6%, respectively. Of the remaining 18 loans in the pool, two loans, representing 8.8% of the current pool balance, are scheduled to mature in February 2017. The remaining 16 loans in the pool are fully amortizing and reported healthy net cash flows and occupancy rates. In addition, all loans benefit from having full or partial recourse to their respective sponsors.

As of the December 2016 remittance, there are three loans, representing 17.2% of the current pool balance, on the servicer’s watchlist. Two of these loans are the previously mentioned loans with upcoming maturities; one of which is further discussed below.

The Privacy Protected loan (Prospectus ID#45), representing 5.0% of the current pool balance, is secured by a single-tenant flex industrial property in Brampton, Ontario. This loan was placed on the servicer’s watchlist as a result of the upcoming February 2017 loan maturity. The former single tenant occupied the subject on a sublease that expired in December 2016, paying a rental rate of $8.00 per square foot (psf). The tenant vacated the property at lease expiration; however, according to the servicer, the borrower has found a replacement tenant that will take occupancy in February 2017. The new tenant will occupy 100% of the space on a lease that expires in February 2021, paying a rental rate of $6.50 psf. According to the most recent financials, the loan reported a YE2015 DSCR of 1.45x, compared with the YE2014 DSCR of 1.40x.

The largest loan in the pool is Privacy Protected loan (Prospectus ID#23), representing 12.6% of the current pool balance. The loan is secured by a 77,607 square foot retail property located in Ancaster, Ontario. The largest tenant occupies 16.2% of the net rentable area (NRA) on a lease that expires in February 2024. The second largest tenant, representing 9.2% of the NRA, was a recognized retail brand that filed for bankruptcy protection resulting in the closure of its stores across the country. The servicer has confirmed that the space has now been filled by a tenant whose lease expires in July 2026. As of the most recent rent roll dated March 2016, the property was 100% occupied; however, tenants combining to occupy 15.0% of the NRA had lease expirations in 2016. According to the servicer, a tenant occupying 8.0% of the NRA has extended its lease to April 2020. There is minimal rollover scheduled for 2017 and 2018, with only 1.7% and 3.6% of the NRA scheduled to expire, respectively. According to the most recent financials, the loan reported a YE2015 DSCR of 1.72x, compared with the YE2014 DSCR of 1.82x.

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 2016) and CMBS North American Surveillance (December 2016), which can be found on our website under Methodologies.