Fitch Upgrades BACM 2004-1

NEW YORK--()--Fitch Ratings has upgraded five and affirmed 9 classes of Banc of America Commercial Mortgage Inc. (BACM 2004-1) commercial mortgage pass-through certificates series 2004-1. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrades reflect a significant increase in credit enhancement as a result of paydowns and stable performance of the underlying collateral. Overall expected losses for the pool based on original pool balance have decreased from Fitch's prior rating action primarily due to better than expected resolutions to specially serviced and maturing loans. Fitch modeled losses of 4.3% of the remaining pool; expected losses on the original pool balance total 4.4%, including $51.1 million (3.9% of the original pool balance) in realized losses to date. Fitch has designated four loans (23.1%) as Fitch Loans of Concern, which includes two specially serviced assets (6.3%).

As of the January 2014 distribution date, the pool's aggregate principal balance has been reduced by 86.4% to $181.1 million from $1.33 billion at issuance. Since the last rating action the transaction was paid down by $711.5 million representing 53.6% of the original pool balance. Per the servicer reporting, three loans (34.4% of the pool) are defeased. Interest shortfalls are currently affecting classes H through P.

The largest contributor to expected losses is a 74,031 square foot (sf) office property (4.2% of the pool) located in Federal Way, WA. The asset is real estate owned (REO) as of December 2013. The asset suffers from occupancy issues due to the weakness of the submarket. As of December 2013, occupancy for the property was 66% and is expected to decline further with several tenants anticipated to vacate upon lease expiration. Fitch expects significant losses upon disposition of the asset.

The next largest contributor to expected losses is a 97,186 sf office property (2.1%) located in Cleveland, OH. The loan transferred to special servicing in November 2013 due to maturity default. As of YE 2012, occupancy for the property was 80% with debt service coverage ratio (DSCR) of 0.97x compared to 91% occupancy at issuance. Property performance remains weak due to several month-to-month leases at lower rental rates coupled with soft market conditions. The servicer is working with the borrower on a potential resolution while dual-tracking foreclosure.

RATING SENSITIVITY

Rating Outlooks on the remaining classes remain Stable due to substantial paydown since Fitch's last rating action, contributing to increased credit enhancement of the classes. Fitch performed additional stresses when considering upgrades. Although credit enhancement remains high relative to the rating category, further upgrades were limited given the high concentration of upcoming loan maturities and exposure to assets in tertiary markets. Any increase in modeled losses may have a greater impact on credit enhancement. The Distressed classes (those rated below 'B') may be subject to further downgrades as additional losses are realized.

Fitch upgrades the following classes and revises or assigns Rating Outlooks as indicated:

--$13.3 million class C to 'AAAsf' from 'AAsf', Outlook to Stable from Negative;
--$29.9 million class D to 'Asf' from 'BBBsf', Outlook to Stable from Negative;
--$13.3 million class E to 'BBBsf' from 'BBsf', Outlook to Stable from Negative;
--$18.2 million class F to 'BBsf' from 'Bsf', Outlook to Stable from Negative;
--$11.6 million class G to 'Bsf' from 'CCCsf', Outlook Stable.

Fitch affirms the following classes but revises Rating Outlooks and REs as indicated:

--$31.5 million class B at 'AAAsf', Outlook to Stable from Negative;
--$19.9 million class H at 'CCsf', RE 100%.
--$6.6 million class J at 'Csf', RE 30%.

Fitch affirms the following classes as indicated:

--$36.1 million class A-1A at 'AAAsf', Outlook Stable;
--$670,553 class K at 'Dsf', RE 0%;
--$0 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%.

Classes A-1, A-2, A-3, A-4 and X-P have paid in full. Fitch does not rate the class P certificates. 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. 11, 2013 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'.

Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).

Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818477
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Contacts

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

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Contacts

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