Fitch Upgrades 3 Classes of MLMT 2003-Key1

NEW YORK--()--Fitch Ratings has upgraded three and affirmed nine 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 upgrades reflect the increased credit enhancement to the senior classes as a result of principal paydown since Fitch's last review. Fitch modeled losses of 3.7% of the remaining pool; expected losses on the original pool balance total 4.1%, including $41.8 million (3.9% of the original pool balance) in realized losses to date. Fitch has designated three loans (36.9%) as Fitch Loans of Concern, which includes two specially serviced assets (6.3%).

As of the February 2014 distribution date, the pool's aggregate principal balance has been reduced by 94.1% to $63.6 million from $1.08 billion at issuance. Interest shortfalls are currently affecting classes H through Q.

RATING SENSITIVITY

The transaction has experienced significant paydown; as a result, the remaining pool is highly concentrated with only seven of the original 80 loans remaining. In addition, the top two loans account for 68% of the remaining pool balance. The largest loan in the pool (37.2% of the pool) is scheduled to mature by the end of 2014, and the next three largest loans (51.4%) have anticipated repayment dates (ARDs) in 2014 with final maturities in 2028 (45.3%) and 2033 (6.1%). Given the concentrated nature of the pool, Fitch considered additional stresses to the cash flow and capitalization rates on the non-specially serviced loans. The results of the higher stresses would not impact the current rating recommendations.

The largest loan in the pool is the Mall at Fairfield Commons (37.2%), which is secured by 857,000 square feet (SF) of a 1.1 million SF regional mall in Beavercreek, OH. Anchor and major tenants include Macy's, JC Penney's, Sears, Elder Beerman, Elder Beerman for Her, and Dick's. The December 2013 rent roll reported occupancy at 99%. Trailing 12-month (TTM) November 2013 inline tenant sales reported at $311 per square foot (psf), compared to $326 psf at both TTM June 2013 and YE December 2012. The NOI debt service coverage ratio (DSCR) reported 1.48x for both year-to-date (YTD) September 2013 and YE December 2012. The loan matures in November 2014, and is sponsored by Glimcher Realty Trust.

The largest loan of concern is the Circa Capital East Pool (30.6%), the second largest loan in the pool, which is secured by three Holiday Inns located in Billings, MT, Fort Smith, TX, and Lubbock, TX. The properties have seen decreases in occupancy and room revenue, and have been slow to recover from trough performance during the economic downturn. Portfolio occupancy reported at 54% for TTM September 2013, compared to 40% for YE December 2012 and 44% YE 2011. The NOI DSCR reported lower at 1.12x for YE 2013, compared to 1.24x for YE2012, and 1.11x for YE 2011. The loan's ARD is scheduled for March 2014, with a final maturity date of August 2028. The loan has remained current since issuance.

The largest specially serviced loan is secured by an 88-unit multifamily property in Kettering, OH (3.6%). Due to market conditions and completion, the property has experienced cash flow issues from occupancy declines and lower rents. The YE December 2012 NOI DSCR reported at 0.95x, compared to 1.11x at YE December 2011. The property is 89% occupied as of January 2014. The loan transferred to special servicing in July 2013 for payment default. A receiver was appointed in October 2013, and the special servicer is proceeding with judicial foreclosure.

Fitch upgrades the following classes as indicated:

--$1.7 million class C to 'AAAsf' from 'Asf'; Outlook Stable;

--$25.1 million class D to 'Asf' from 'BBBsf'; Outlook Stable;

--$10.6 million class E to 'BBBsf' from 'BBsf'; Outlook Stable.

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

--$11.9 million class F at 'Bsf'; Outlook to Stable from Negative;

--$7.9 million class G at 'CCsf'; RE 100%;

--$6.5 million class H at 'Dsf'; RE 0%;

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

--$0 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 P at 'Dsf', RE 0%.

The class A-1, A-2, A-3, A-4, A-1A, B, and interest only class X-P certificates have paid in full. Fitch does not rate class Q. Fitch also did not rate the rake classes WW-1, WW-2, and WW-3, and the interest only WW-X. 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=822684

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Benson Thomas, +1-212-908-0645
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Christopher Bushart, +1-212-908-0606
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Benson Thomas, +1-212-908-0645
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Christopher Bushart, +1-212-908-0606
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com