Fitch Affirms 14 Classes, Downgrades 1 Distressed Class of MLMT 2004-KEY2

NEW YORK--()--Fitch Ratings has downgraded one distressed class and affirmed 14 classes of Merrill Lynch Mortgage Trust 2004-KEY2. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations reflect the relatively stable performance of the pool. The downgrade is due to increased certainty of losses on the specially serviced loans. Fitch modeled losses of 10.9% of the remaining pool; expected losses on the original pool balance total 9.2%, including $49.5 million (4.4% of the original pool balance) in realized losses to date.

There are 80 loans remaining in the pool. Fitch has designated 14 loans (19.5%) as Fitch Loans of Concern, which includes six specially serviced assets (9.4%); 13 loans (20.1%) are defeased. Maturities are concentrated in 2014 with 61 loans (87.6% of the pool) scheduled to mature. As of the April 2014 distribution date, the pool's aggregate principal balance has been reduced by 56.3% to $487.3 million from $1.12 billion at issuance. Interest shortfalls are currently affecting classes G through DA.

The largest contributor to expected losses is a 125,422 square foot (sf) retail center located in Castaic, CA. The loan transferred to special servicing in November 2010 due to payment default and foreclosure was completed in March 2012. Per the servicer, the anchor tenant, Ralph's Grocery, which occupies 44,190 sf, recently closed its store but is continuing to remit their contractual rent. Ralph's lease runs through October 2017. Rite Aid, the second largest tenant, occupies 27,985 sf and has recently extended their lease one year through January 2015. As of year-end 2013 the property's net operating income (NOI) was $1.3 million with an occupancy of 82.6%. Marketing efforts to re-lease the Ralph's space is underway.

The next largest contributor to expected losses is a 291,333 sf retail center located in Farmington Hills, MI. In 2012, Kohl's (which occupied 25% of the property) vacated, which reduced the occupancy to 70%. The loan was sent to special servicing in May 2012 due to payment default and foreclosure was completed in November 2013. As of year-end 2013 the property was 70% occupied and reported NOI of $847,054.

The third largest contributor to expected losses is a loan secured by a 98,121 sf retail center in Rocklin, CA. The loan transferred to special servicing in March 2014 due to significant shortfall from operations resulting from the loss of a major tenant in 2012. As of December 2013 the property was 73% occupied and reported a year-end NOI debt service coverage ratio (DSCR) of 0.24x. The special servicer is moving toward foreclosure as the borrower informed the servicer that they could no longer support the shortfall.

RATING SENSITIVITY

Rating Outlooks on classes A-1A through C remain Stable due to increasing credit enhancement and continued paydown. Additional downgrades to classes D through G, the distressed classes, are possible as losses are realized. Classes H through P will remain at 'Dsf' as losses have already been realized.

Fitch downgrades the following class as indicated:

--$15.3 million class F to 'Csf' from 'CCsf', RE 0%.

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

--$119.3 million class A-1A at 'AAAsf', Outlook Stable;

--$261.1 million class A-4 at 'AAAsf', Outlook Stable;

--$26.5 million class B at 'Asf', Outlook to Stable from Negative;

--$8.4 million class C at 'BBBsf', Outlook to Stable from Negative;

--$22.3 million class D at 'CCCsf', RE 100%.

--$12.5 million class E at 'CCsf', RE 0%;

--$11.1 million class G at 'Csf', RE 0%;

--$10.4 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 and A-3 certificates have paid in full. Fitch does not rate the class Q and DA 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 then CMBS then 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=829497

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Contacts

Fitch Ratings
Primary Analyst
Dustin Pike, +1 212-612-7875
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill, +1 212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Dustin Pike, +1 212-612-7875
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill, +1 212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com