DBRS Confirms Ratings on Schooner Trust, Series 2005-4

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates issued by Schooner Trust, Series 2005-4 as follows:

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class D at AA (high) (sf)
-- Class E at AA (low) (sf)
-- Class F at A (low) (sf)
-- Class G at BBB (high) (sf)
-- Class H at BBB (sf)
-- Class J at BBB (low) (sf)
-- Class K at BB (high) (sf)
-- Class L at BB (low) (sf)
--Class XC-1 at AAA (sf)
--Class XC-2 at AAA (sf)

All classes have Stable trends. DBRS does not rate the first loss piece, Class M.

The rating confirmations reflect the performance of the loans remaining in the transaction and the increased credit enhancement to the bonds resulting from collateral reduction of 79.8% since issuance. As of the August 2015 remittance report, 49 loans have paid out of the pool since issuance, with 27 loans remaining in the transaction, all of which are scheduled to mature in 2015. According to the most recent year-end financial reporting available, the pool has a weighted-average (WA) debt service coverage ratio (DSCR) and WA exit debt yield of 1.49 times (x) and 15.0%, respectively. These metrics are a strong indication of the ability of loans with upcoming maturities in 2015 to be refinanced. The transaction also benefits from defeasance collateral as two loans, representing 6.7% of the current pool balance, are fully defeased.

DBRS maintains an investment-grade shadow-rating on two loans, Carrefour Du Versant (Prospectus ID#19) and 6815 Columbus Road (Prospectus ID#45) which, combined, represent 7.8% of the current pool balance. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

There are no delinquent or specially serviced loans; however, five loans, representing 25.9% of the current pool balance, are on the servicer’s watchlist. The two largest loans on the servicer’s watchlist, which have elevated refinance risk, are highlighted below.

The Scotia Centre loan (Prospectus ID#6; 16.5% of the current pool balance) is secured by an 11-storey 190,196-square foot (sf) Class A office building in St. John’s, Newfoundland. The property features an attractive design and is located in the downtown core, providing a view of the St. John’s harbour. This loan was added to the servicer’s watchlist because of a decline in occupancy. According to the May 2015 rent roll, the property was 67.4% occupied, a significant decrease from the 100.0% occupancy rate at YE2013. Occupancy declined after the former tenant, Husky Energy Inc. (Husky), vacated its space in 2014 ahead of its lease expiration. Husky had occupied 31.5% of the net rentable area (NRA). As a result, the YE2014 operating statement analysis report (OSAR) reported a DSCR of 1.41x, a decrease from YE2013 DSCR of 2.04x. Property management is actively marketing the vacant space and have prospective tenants interested, including a local law firm and several engineering and consulting firms. The second-largest tenant, Bank of Nova Scotia (9.4% of NRA), has a lease expiring August 2015; however, the servicer has confirmed that the tenant is in the process of renewing its lease.

The 1856 Sources Boulevard II loan (Prospectus ID#20; 4.5% of the current pool balance), is secured by a mixed-used Class B office and retail complex consisting of three buildings totalling 97,414 sf. The subject is located in Pointe-Claire, Québec, and the loan was placed on the servicer’s watchlist because the DSCR fell below the 1.10x CRE Finance Council threshold. According to the YE2014 OSAR, the DSCR was 0.15x, a decrease from the YE2013 DSCR of 1.50x. The decline in net cash flow is a result of a decrease in rental collections and expense reimbursements as well as an approximately $300,000 increase in general and administration expenses. The servicer has asked the borrower to provide an explanation regarding the increase in expenses and is currently awaiting a response. According to the June 2015 rent roll, the property was 70.7% occupied, a slight increase from the YE2014 occupancy rate of 69.9%. The largest tenant, Amec Foster and Wheeler, occupies 16.4% of the NRA on a lease that expired in July 2015. DBRS has requested a leasing update from the servicer.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The August 2015 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact DBRS at info@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 applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

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