Fitch Upgrades 6 Classes of MLMT 2004-MKB1

NEW YORK--()--Fitch Ratings has upgraded six classes and affirmed three classes of Merrill Lynch Mortgage Trust (MLMT) 2004-MKB1 commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrades and affirmations reflect increasing credit enhancement as a result of significant paydown since the last rating action and stable projected performance. Fitch modeled losses of 18.8% of the remaining pool; expected losses on the original pool balance total 2.1%, including $10.3 million (1.1% of the original pool balance) in realized losses to date.

As of the April 2014 distribution date, the pool's aggregate principal balance has been reduced by 94.3% to $56.3 million from $980 million at issuance. There are 12 loans remaining in the pool, three are defeased (39.6% of pool), and two (23.5% of the pool) are in special servicing. The maturities of the non-specially serviced assets are 13.3% in 2014, 43.7% in 2015, and 11.4% in 2019. Interest shortfalls are currently affecting classes L through Q.

The largest contributor to expected losses is a specially-serviced asset (14.2% of the pool), a 104,169 square foot (sf) office property located in Columbus, OH. The loan transferred to special servicing in February 2012 for imminent default. In May 2012 a receiver was appointed to lease and manage the property. Foreclosure was completed in September 2013. Occupancy at Year-End (YE) 2013 was 49% down from the previous 59% and 85% as of YE 2012 and YE 2011, respectively. However, per the special servicer, occupancy has recently rebounded to mid-60%. The special servicer hopes to bring occupancy up to 80% and will look to market the property for sale later this year.

The second largest contributor to expected losses is a specially-serviced loan (9.3% of the pool), which is secured by a 244-unit apartment community in Arlington, TX (Dallas-Ft Worth MSA). The loan transferred to special servicing in November 2013 for imminent maturity default and matured in January 2014. The borrower previously requested a two-year loan extension (through January 2016), but recently indicated that they are close to finalizing a refinance of the loan. A short-term forbearance is currently in place, however per the special servicer, if the borrower doesn't pay off the loan by June 2014 foreclosure action will be initiated. Occupancy was 69% with a 0.59x NOI DSCR as of YE 2013.

The third largest loan is a 71,031 sf medical office building (12% of the pool) located in Indianapolis, IN. The subject is 100% leased to Clarian Health Partners(now known as Indiana University (IU) Health, rated 'AA-' by Fitch) with an expiration in July 2018. The loan had an anticipated repayment date of March 2014 with a final maturity of 2034. NOI DSCR was 1.39x as of YE 2013, however the single-tenant exposure presents binary risk should the tenant not renew.

RATING SENSITIVITY

Upgrades to classes F through L are supported by increased credit enhancement due to paydown from ten-year maturities and the percentage of defeased loans in the remaining pool (39.6% of the pool). However, the upgrades to classes H through L are constrained by pool concentration, limited near-term pay-down, and potential for future downgrade should losses increase on the specially serviced loans. The distressed classes (those rated below B) are expected to be subject to downgrades should realized losses be greater than Fitch's expectations.

Fitch upgrades the following classes as indicated:

--$5.3 million class F to 'AAAsf' from 'Asf'; Outlook Stable;

--$12.2 million class G to 'AAAsf' from 'BBBsf'; Outlook Stable;

--$11 million class H to 'AAsf' from 'BBsf'; Outlook Stable;

--$3.7 million class J to 'Asf' from 'Bsf'; Outlook to Stable from Negative;

--$4.9 million class K to 'BBsf' from 'Bsf'; Outlook to Stable from Negative;

--$4.9 million class L to 'Bsf' from 'CCCsf'; Outlook Stable.

Fitch affirms the following classes as indicated:

--$4.9 million class M at 'CCCsf', RE 90%;

--$2.5 million class N at 'CCsf', RE 0%;

--$3.7 million class P at 'Csf', RE 0%.

The class A-1, A-2, A-3, A-4, A-1A, B, C, D and E certificates have paid in full. Fitch does not rate the class Q certificates. Fitch previously withdrew the ratings on the interest-only class XC and XP 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. 18, 2012).

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
Primary Analyst
Martin Nunnally
Associate Director
+1 212-908-0871
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
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

Sharing

Contacts

Fitch Ratings
Primary Analyst
Martin Nunnally
Associate Director
+1 212-908-0871
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
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