DBRS Upgrades One Class and Confirms Eight Classes of Merrill Lynch Financial Assets Inc., Series 2007-Canada 21

DBRS Limited (DBRS) has today upgraded the rating on the following class of Commercial Mortgage Pass-Through Certificates, Series 2007-Canada 21 issued by Merrill Lynch Financial Assets Inc., Series 2007-Canada 21:

-- Class D to A (high) (sf) from BBB (sf)

Additionally, DBRS has confirmed the following classes:

-- Class XC at A (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)

All trends are Stable, excluding Classes K and L, for which DBRS has maintained Negative trends because of concerns surrounding the performance of the largest loan remaining in the pool. Concerns include poor financial performance and the loan being secured by a property in a market with limited liquidity.

The rating upgrade reflects the increased credit support to the bonds as a result of significant principal repayment to the securitized debt since issuance. The transaction originally consisted of 41 loans. There are two loans remaining in the trust with an aggregate principal balance of $24.7 million, reflecting a collateral reduction of 93.6% because of scheduled loan amortization and repayment since issuance. Both loans have either partial or full recourse to their respective sponsors.

Based on YE2016 figures, the transaction reported a weighted-average (WA) debt service coverage ratio (DSCR) of 0.88 times (x) and a WA debt yield of 7.2%. The poor overall performance is attributable to the largest loan, 550-11th Avenue Office Building (Prospectus ID#3; representing 66.2% of the current pool balance), which was the only loan on the servicer’s watchlist as at the July 2017 remittance. The loan is secured by a 97,325-square-foot Class B office building located in Calgary in the city’s Beltline District. The loan has been on the watchlist since 2012 because of decreased occupancy, which was 43.2% as at March 2017. The YE2016 DSCR was 0.58x compared with the YE2015 DSCR of 0.88x.

The ratings assigned to Classes D, E, F, G and H materially deviate 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 given the uncertain loan-level event risk.

The rating assigned to Class XC materially deviates from the lower ratings implied by the quantitative results. Consideration was given to the actual loan, the transaction and sector performance, where a rating based on the lowest-rated notional class may not reflect the observed risk.

DBRS has provided updated loan-level commentary and analysis for both remaining loans in the transaction in the DBRS commercial mortgage-backed securities (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 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 principal methodology is CMBS North American Surveillance (March 2017), which can be found on www.dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.