NEW YORK--()--Fitch Ratings has downgraded one class and affirmed 14 classes of Merrill Lynch Mortgage Trust's (MLMT) commercial mortgage pass-through certificates series 2003-KEY1. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrade reflects Fitch expected losses across the pool, with greater certainty of expected losses on the specially serviced loan due to updated valuations and information on the disposition strategy obtained from the special servicer. Fitch modeled losses of 7.4% of the remaining pool; expected losses on the original pool balance total 4.8%, including losses already incurred. The pool has experienced $4.1 million (0.4% of the original pool balance) in realized losses to date. Fitch has designated 12 loans (19.1%) as Fitch Loans of Concern, which includes one specially serviced asset (5.7%).
The revision of the Rating Outlooks to Stable from Positive on classes B and C reflect the concentration risk of loans representing 77% of the pool balance schedule to mature over the next 12 months. The Negative Outlook on class F reflects the potential for further rating actions should realized losses be greater than Fitch's expectations. The distressed classes (those rated below 'B') are expected to be subject to further downgrades as losses are realized.
As of the February 2013 distribution date, the pool's aggregate principal balance has been reduced by 38.6% to $661.3 million from $1.08 billion at issuance. Per the servicer reporting, 12 loans (20.2% of the pool) have defeased since issuance. Interest shortfalls are currently affecting classes H through Q.
The largest contributor to expected losses is a manufactured housing community in Fair Haven, MI (5.7% of the pool), the third largest loan in the pool and the only specially serviced asset as of the February 2013 distribution date. The property experienced cash flow issues due to severe occupancy declines, and transferred to special servicing in January 2010 due to monetary default. The foreclosure sale took place in May 2012, and the property became lender REO in June 2012. The property is listed for sale with the special servicer.
Fitch downgrades the following class:
--$7.9 million class G to 'CCsf' from 'CCCsf'; RE 100%.
Fitch affirms the following classes and revises the Rating Outlooks as indicated:
--$382.9 million class A-4 at 'AAAsf'; Outlook Stable;
--$110.6 million class A-1A at 'AAAsf'; Outlook Stable;
--$34.3 million class B at 'AAsf'; Outlook to Stable from Positive;
--$15.8 million class C at 'Asf'; Outlook to Stable from Positive;
--$25.1 million class D at 'BBBsf'; Outlook Stable;
--$10.6 million class E at 'BBsf'; Outlook Stable;
--$11.9 million class F at 'Bsf'; Outlook Negative;
--$10.6 million class H at 'Csf'; RE 50%;
--$5.3 million class J at 'Csf'; RE 0%;
--$5.3 million class K at 'Csf'; RE 0%;
--$4 million class L at 'Csf'; RE 0%;
--$6.6 million class M at 'Csf'; RE 0%;
--$2.6 million class N at 'Csf'; RE 0%;
--$1.3 million class P at 'Csf'; RE 0%.
Fitch does not rate class Q. Fitch also does not rate classes WW-1, WW-2, WW-3, and interest only (IO) class WW-X, which represent the B-note rakes of 77 West Wacker Drive. The A-note for the property is the largest loan (20.2%) in the pooled portion of the trust. Classes A-1, A-2, A-3 and the interest-only class XP have repaid in full. Fitch previously withdrew the rating on the interest-only class 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