NEW YORK--()--Fitch Ratings has downgraded five classes and affirmed 15 classes of ML-CFC Commercial Mortgage Trust, series 2007-8 (ML-CFC 2006-3), commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades reflect an increase in Fitch-modeled losses across the pool due to further deterioration of loan performance, most of which involves higher losses on the specially serviced loans resulting from updated valuations, as well as continued underperformance for several loans in the top 15, many of which are in secondary or tertiary markets. Fitch modeled losses of 8.9% of the remaining pool; expected losses on the original pool balance total 10.8%, including losses already incurred. The pool has experienced $71.1 million (2.9% of the original pool balance) in realized losses to date. Fitch has designated 67 loans (39.1%) as Fitch Loans of Concern, which includes 15 specially serviced assets (7.6%). The negative Rating Outlook on Class AJ is due to the relatively thin size of the tranches subordinate to it.
As of the January 2013 distribution date, the pool's aggregate principal balance has been reduced by 10.8% to $2.16 billion from $2.43 billion at issuance. Per the servicer reporting, one loan (0.4% of the pool) has defeased since issuance. Interest shortfalls are currently affecting classes F through Q.
The largest contributor to expected losses is the Atrium Hotel Portfolio loan (11.3% of the pool), the largest loan in the pool. The loan is secured by a portfolio of six full-service hotels located in six metropolitan areas across six different states. The properties are well located in their respective markets with close proximate to downtown areas, airports, universities, and convention centers. Five of the six hotels are flagged by Hilton Hotels as Embassy Suites. The year-end (YE) December 2012 net operating income (NOI) reported an 8% improvement over YE December 2011, primarily attributed to increased revenues at five out of the six hotels. Due to loan amortization, which began in October 2011, the YE 2012 NOI debt service coverage ratio (DSCR) reported lower at 1.13 times (x), compared to the interest-only DSCR's of 1.21x and 1.24x for YE 2011 and YE 2010, respectively. The portfolios combined occupancy reported at 74% for trailing 12 month (TTM) December 2012.
The second largest contributor to Fitch-modeled losses is secured by a 156,846sf retail center located in Gibert, AZ (1.1%). The movie theater anchored (28% of net rentable area (NRA)) property had experienced cash flow issues from occupancy declines due to a slow leasing market as well as newer competition in the subject area. The loan transferred to special servicing in February 2011 due to payment default. The receiver, which was appointed in November 2011, has been successful in negotiating leases with new and existing tenants. The servicer reports property occupancy at 82% as of December 2012.
The third largest contributor to Fitch-modeled losses is secured by a 142-unit multifamily property located in Tucson, AZ (0.9%). The servicer reported current occupancy at 92%. The loan transferred to the special servicer in December 2008 due to payment default. The Borrower subsequently filed for Chapter 11 Bankruptcy in September 2009. In October 2010 the Bankruptcy Court had ruled for the lender to modify the loan at specific terms, which included a significant principal reduction. The special servicer had appealed the ruling, which was denied by the US District Court of AZ in July 2011. The servicer has re-appealed the decision to the US Court of Appeals. According to the servicer, briefings have been filed and are pending assignment to judge.
Fitch downgrades the following classes and assigns or revises Rating Outlooks and Recovery Estimates (REs) as indicated:
--$191 million class AJ to 'BBsf' from 'BBB-sf'; Outlook to Negative from Stable;
--$48.5 million class B to 'CCCsf' from 'Bsf'; RE 75%;
--$18.2 million class C to 'CCCsf' from 'B-sf'; RE 0%;
--$48.5 million class D to 'CCsf' from 'CCCsf'; RE 0%;
--$21.2 million class E to 'Csf' from 'CCsf'; RE 0%.
Fitch affirms the following classes as indicated:
--$116.1 million class A-2 at 'AAAsf'; Outlook Stable;
--$34 million class A-3 at 'AAAsf'; Outlook Stable;
--$83.8 million class A-SB at 'AAAsf'; Outlook Stable;
--$971.8 million class A-4 at 'AAAsf'; Outlook Stable;
--$301.5 million class A-1A at 'AAAsf'; Outlook Stable;
--$242.5 million class AM at 'AAAsf'; Outlook Stable;
--$36.4 million class F at 'Csf'; RE 0%.
--$24.3 million class G at 'Csf'; RE 0%;
--$21.2 million class H at 'Csf'; RE 0%;
--$4.8 million class J at 'Dsf'; RE 0%;
--Class K at 'Dsf'; RE 0%;
--Class L at 'Dsf'; RE 0%;
--Class M at 'Dsf'; RE 0%;
--Class N at 'Dsf'; RE 0%;
--Class P at 'Dsf'; RE 0%.
The balances for classes K through P have been reduced to zero due to realized losses. The class A-1 certificate has paid in full. Fitch does not rate the class Q certificate. Fitch previously withdrew the ratings on the interest-only class XP and XC certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions 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
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria