Fitch Upgrades MSC 2004-IQ7

CHICAGO--()--Fitch Ratings has upgraded 10 classes and affirmed one class of Morgan Stanley Capital I Trust (MSC 2004-IQ7) commercial mortgage pass-through certificates series 2004-IQ7. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrades reflect actual and expected increases in credit enhancement from amortization, paydown from maturing loans, and defeased collateral (21.7% of the pool). The transaction experienced significant paydown since Fitch's last rating action as 60.1% of the pool liquidated or paid in full; realized losses increased by less than 0.1% of the original pool balance.

Fitch modeled losses of 6.4% of the remaining pool; expected losses on the original pool balance total 0.7%, including $1.8 million (0.2% of the original pool balance) in realized losses to date. Fitch has designated six loans (17.8%) as Fitch Loans of Concern, which includes two specially serviced assets (4.1%).

As of the April 2014 distribution date, the pool's aggregate principal balance has been reduced by 91.7% to $71.8 million from $863 million at issuance. There are 27 loans remaining out of the original 128 loans at issuance. Of the remaining loans, 17 loans (33.9% of the pool) are secured by cooperative housing properties, two of which are in special servicing. Per the servicer reporting, three loans (21.7%) are defeased. Interest shortfalls are currently affecting class O.

The largest contributor to expected losses is secured by an 89 unit cooperative housing property (1.7% of the pool) located in Inkster, MI. The loan was unable to refinance at maturity and the servicer is pursuing resolution options which include foreclosure and a potential note sale. Servicer reported occupancy as of February 2014 was 65%.

The next largest contributor to expected losses is secured by a 105 unit cooperative housing property (2.4%) located in Middle Island, NY. The sponsor filed for Chapter 11 bankruptcy prior to an imminent foreclosure action in 2011. The bankruptcy proceedings continue with a hearing for plan confirmation scheduled in May 2014. The servicer was successful in replacing sponsor-related management with a third-party managing agent. In addition to the bankruptcy proceedings, alleged improprieties on the part of the sponsor are being investigated.

RATING SENSITIVITY

Outlooks remain Stable as the classes benefit from increasing credit enhancement, defeasance and continued delevering of the transaction through amortization and repayment of maturing loans. The distressed class may be subject to further rating actions as losses are realized.

Fitch upgrades the following classes and revises Outlooks as indicated:

--$21.8 million class C to 'AAAsf' from 'Asf', Outlook Stable;

--$6.8 million class D to 'AAAsf' from 'A-sf', Outlook Stable;

--$9.4 million class E to 'AAsf' from 'BBB+sf', Outlook Stable;

--$5.4 million class F to 'Asf' from 'BBBsf', Outlook Stable;

--$4.3 million class G to 'Asf' from 'BBB-sf', Outlook to Stable from Negative;

--$5.4 million class H to 'BBBsf' from 'BBsf', Outlook to Stable from Negative;

--$4.3 million class J to 'BBsf' from 'Bsf', Outlook to Stable from Negative;

--$2.2 million class K to 'BBsf' from 'B-sf', Outlook to Stable from Negative;

--$2.2 million class L to 'Bsf' from 'CCCsf', Outlook Stable;

--$2.2 million class M to 'Bsf' from 'CCCsf', Outlook Stable.

Fitch affirms the following class as indicated:

--$2.2 million class N at 'CCCsf', RE 100%.

Classes A-1, A-2, A-3, A-4 and B certificates have paid in full. Fitch does not rate the class O certificates. Fitch previously withdrew the ratings on the interest-only class X-1 and X-Y 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

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

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Contacts

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