DBRS Confirms ML-CFC Commercial Mortgage Trust, Series 2006-1

DBRS Limited (DBRS) has today confirmed the rating of the remaining class of Commercial Mortgage Pass-Through Certificates, Series 2006-1 (the Certificates) issued by ML-CFC Commercial Mortgage Trust, Series 2006-1 (the Trust) as follows:

-- Class B at BB (high) (sf)

The transaction has experienced collateral reduction of 98.9% since issuance, with five of the original 152 loans remaining in the pool as of the June 2017 remittance report. As of the June 2017 remittance report, the Class B Certificates had an outstanding principal balance of just $3.98 million, with loan repayments and liquidations paying down the original Class B balance of $50.87 million. The Class C Certificates had an outstanding balance of $20.10 million as of the June 2017 remittance, with credit enhancement for the Class B Certificates of 83.5%. Despite the significant credit support for the Class B Certificates, the many challenges and unknowns surrounding the performance and repayment status for four of the five remaining loans in the pool support the current rating at BB (high) (sf).

The remaining loans in the pool are currently scheduled to mature between 2018 and 2026. The largest loan remaining in the pool, with an outstanding balance of $10.21 million representing 42.4% of the transaction balance, is scheduled to mature in February 2018 (extended from the original maturity in February 2016 while in special servicing). Although the loan is reporting an in-place debt service coverage ratio (DSCR) of 0.98 times (x) at YE2016, with a DBRS Refi DSCR of 0.78x, the loan has remained current over the past year. However, the near-term maturity could pose challenges for the sponsor and DBRS has assumed a conservative scenario for this loan in its analysis.

Based on the most recent year-end reporting available for the individual loans, the transaction benefits from a stable in-place debt yield of 11.3%. Although the pool has experienced a WA net cash flow decline of 27.5% over the DBRS issuance figures, with all three of the largest loans in the pool reporting a DSCR just at or below 1.0x, none of the loans in the pool are currently in special servicing and all were current as of the June 2017 remittance.

As of the June 2017 remittance report, all five loans remaining in the pool are on the servicer’s watchlist, three of which are being monitored for performance-related reasons. The largest two loans have previously been modified with maturity date extensions. The third-largest loan has consistently performed below issuance levels, while the remaining two loans have been flagged as the borrower has failed to submit financial statements for the underlying collateral.

The rating assigned to the Class B notes materially deviates from the higher ratings implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted as a result of uncertain loan level event risk.

DBRS has provided updated loan-level commentary and analysis for all remaining loans in the pool in the DBRS CMBS IReports platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log into DBRS CMBS IReports at www.ireports.dbrs.com.

Notes:
All figures are in U.S. 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 principal methodology is CMBS North American Surveillance (March 2017), which can be found on dbrs.com under Methodologies.