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

DBRS Limited (DBRS) 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 trend is Stable.

The transaction has experienced collateral reduction of 99.0% since issuance, with five of the original 152 loans remaining in the pool as of the June 2018 remittance. As of the June 2018 remittance report, the Class B Certificates had an outstanding principal balance of just $1.4 million, with loan repayments and liquidations paying down the original Class B balance of $50.9 million. The Class C Certificates had an outstanding balance of $20.8 million and a total realized loss of $572,669 as of the June 2018 remittance, with credit enhancement for the Class B Certificates of 93.6%. Despite the significant credit support for the Class B Certificates, the challenges and unknowns surrounding the performance of the remaining loans and the repayment status of the largest loan, which is expected to pay off in July 2018, support the current rating at BB (high) (sf).

There are five loans remaining in the pool, four of which are currently scheduled to mature between 2019 and 2026. The largest loan in the pool, Pueblo Crossing (Prospectus ID#12), transferred to Special Servicing due to maturity default as the loan was scheduled to mature in February 2018 (extended from the original maturity in February 2016). The loan is secured by a 91,400 square foot (sf) shopping center consisting of 13 retail units located in Pueblo, Colorado, which has an outstanding balance of $9.9 million, representing 44.5% of the transaction balance. Although the loan is reporting a YE2017 debt service coverage ratio (DSCR) of 0.86 times (x), with a DBRS Refi DSCR of 0.68x, the servicer noted that the loan is expected to pay off in full, as the property is under contract for sale with a scheduled closing date of July 10, 2018. The principal recovered from loan disposition is expected to fully pay down the remaining balance on the Class B Certificates. DBRS will continue to monitor the repayment status of the loan. For additional information on this loan, please see the loan commentary on the DBRS Viewpoint platform, for which information is provided below.

As of the June 2018 remittance report, the remaining four loans in the pool are on the servicer’s watchlist, two of which are being monitored for performance-related reasons. The second-largest loan was previously modified with a maturity date extension, while the third-largest loan has consistently performed below issuance levels. The remaining two loans have been flagged as the borrower has failed to submit financial statements for the underlying collateral.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the remaining loans in the transaction:

-- Prospectus ID#45 – Pueblo Crossing
-- Prospectus ID#58 – Tidewater Estates
-- Prospectus ID#93 – 135 West 27th Street Commercial Corp
-- Prospectus ID#101 – Glendale Kmart
-- Prospectus ID#98 – Mesa K-Mart

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

The rating assigned to Class B 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 given uncertain loan-level event risk.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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