Fitch Downgrades 3 Classes of MSC 2006-HQ9

CHICAGO--()--Fitch Ratings has downgraded three classes and affirmed 23 classes of Morgan Stanley Capital I Trust (MSC 2006-HQ9) commercial mortgage pass-through certificates series 2006-HQ9 due to a slight increase in expected losses on loans in special servicing, higher than expected realized losses from liquidation, and further deterioration in performance of the pool. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Fitch modeled losses of 5.2% of the remaining pool; expected losses on the original pool balance total 7.1%, including losses already incurred. The pool has experienced $66.1 million (2.5% of the original pool balance) in realized losses to date. Fitch has designated 50 loans (20.7%) as Fitch Loans of Concern, which includes nine specially serviced assets (4.2%).

As of the December 2012 distribution date, the pool's aggregate principal balance has been reduced by 12.1% to $2.29 billion from $2.6 billion at issuance. No loans have defeased since issuance. Interest shortfalls are currently affecting classes J through S.

The largest contributor to expected losses is a specially-serviced loan (1.3% of the pool), which is secured by four specialty trade-mart properties located in High Point, NC. The aggregate square footage for the portfolio is 460,681 square feet (sf). All of the tenants are in the furniture and home improvement sectors. The loan transferred to special servicing in May 2009 due to monetary default. The servicer is in the process of preparing the note for sale.

The next largest contributor to expected losses is a 452,407 sf office tower in the financial district of Kansas City, MO (0.9%). The loan transferred to special servicing in October 2011 and became REO in November 2012. Occupancy as of December 2012 was 41%, a decline from 82% at issuance.

The third largest contributor to expected losses is a loan secured by a 110-key hotel property (0.3%) in Tucker, GA, approximately 18 miles southwest of Atlanta. As of December 2012, the loan remained current and with the master servicer. Cash flow generated by the property was insufficient to service the debt through June 2012 with a reported NOI DSCR of 0.72x, compared with 0.46x at YE 2011 and 1.66x at issuance. As of the 2nd quarter of 2012, occupancy, ADR and RevPAR were 54.4%, $69.00 and $38.00, respectively.

Fitch downgrades the following classes and revises Rating Outlooks as indicated:

--$28.9 million class D to 'BBsf' from 'BBB-sf', Outlook to Stable from Negative;

--$28.9 million class H to 'CCsf' from 'CCCsf', RE 35%;

--$32.1 million class J to 'Csf' from 'CCsf', RE 0%.

Fitch affirms the following classes as indicated:

--$144.9 million class A-1A at 'AAAsf', Outlook Stable;

--$196.7 million class A-3 at 'AAAsf', Outlook Stable;

--$70.3 million class A-AB at 'AAAsf', Outlook Stable;

--$784.2 million class A-4 at 'AAAsf', Outlook Stable;

--$350 million class A-4FL at 'AAAsf', Outlook Stable;

--$256.5 million class A-M at 'AAAsf', Outlook Stable;

--$202 million class A-J at 'Asf', Outlook Stable;

--$19.2 million class B at 'Asf', Outlook Stable;

--$35.3 million class C at 'BBBsf', Outlook Stable;

--$22.4 million class E at 'BBsf', Outlook Negative;

--$25.7 million class F at 'Bsf', Outlook Negative;

--$25.7 million class G at 'CCCsf', RE 100%;

--$25.7 million class K at 'Csf', RE 0%;

--$2.2 million class L at 'Dsf', RE 0%;

--$0 class M at 'Dsf', RE 0%;

--$0 class N at 'Dsf', RE 0%;

--$0 class O at 'Dsf', RE 0%;

--$0 class P at 'Dsf', RE 0%;

--$0 class Q at 'Dsf', RE 0%;

--$2.7 million class ST-B at 'B-sf', Outlook Stable;

--$1.1 million class ST-C at 'CCCsf', RE 100%;

--$2.3 million class ST-D at 'CCCsf', RE 100%;

--$1.3 million class ST-E at 'CCCsf', RE 100%.

The ST classes are related to a non-pooled B-Note secured by 633 17th Street. The underlying collateral is an office building in the central business district of Denver, CO. Fitch affirms these classes as the performance of the property has remained stable with YE 2011 NOI improving 4% from YE 2010, but still 17% below levels at issuance.

Fitch does not rate the class S, ST-F and DP certificates. Classes A-1, A-2, X-RC and ST-A have paid in full. Fitch previously withdrew the ratings on the interest-only class X and X-MP certificates.

Additional information on Fitch's criteria for analyzing U.S. fixed rate CMBS is available in the Dec. 18, 2012 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria,' which is available at 'www.fitchratings.com' under the following headers:

Structured Finance >> CMBS >> Criteria Reports

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (June 6, 2012);

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 18, 2012).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696969

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Contacts

Fitch Ratings
Primary Analyst
David Ro, +1-312-368-3132
Associate Director
Fitch, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
David Ro, +1-312-368-3132
Associate Director
Fitch, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com