NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 17 classes of ML-CFC Commercial Mortgage Trust (MLCFC) commercial mortgage pass-through certificates series 2006-3. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The affirmations reflect sufficient credit enhancement of the remaining classes relative to Fitch's expected losses. Fitch modeled losses of 12.8% of the remaining pool; expected losses on the original pool balance total 15.1%, including $138.5 million (5.7% of the original pool balance) in realized losses to date. Fitch has designated 64 loans (41.2%) as Fitch Loans of Concern, which includes 10 specially serviced assets (5.7%).
As of the August 2014 distribution date, the pool's aggregate principal balance has been reduced by 26.6% to $1.78 billion from $2.43 billion at issuance. Per the servicer reporting, six loans (9% of the pool) are defeased. Interest shortfalls are currently affecting classes B through Q.
The largest contributor to expected losses remains the Atrium Hotel Portfolio loan (13.4% of the pool), the largest loan in the pool. The loan is secured by a portfolio of six full-service hotels, including five Embassy Suites (Cary/Raleigh, NC; Portland, OR; Tampa, FL; Charleston, WV; Seaside, CA) and a Capital Plaza Hotel (Topeka, KS). As of year-end (YE) December 2013, the combined net operating income (NOI) debt service coverage ratio (DSCR) reported at 1.15x, compared to 1.13x for YE December 2012. The portfolios combined occupancy reported approximately 74% for both YE 2013 and YE 2012. The loan transferred to special servicing in May 2013 for imminent default, after the borrower notified the master servicer of significant capital improvement needs with limited available reserves, coupled with upcoming franchise agreement expiration dates between 2015 through 2018. The loan had remained current on debt service payments, and transferred back to the master servicer unchanged in November 2013. Fitch expects the loan may return to the special servicer prior to the subject loans maturity in September 2016 due to refinancing risk as a result of significant costs reported for the property improvement plans (PIPs) and franchise agreements scheduled to expire in the next few years.
The second largest contributor to expected losses is the Westin Arlington Gateway loan (4.9%), the third largest loan in the pool. The loan is secured by a 336-room, full-service hotel in Arlington, VA located eight miles east of Capital Hill and three miles from Arlington's business district. The property's NOI has declined since issuance from reduced revenues. NOI DSCR has also declined since the loan began amortizing in 2009. The YE 2013 NOI DSCR reported at 0.97x, compared to 1.05x at YE 2012, 1.18x at YE 2011, and 1.19x for YE 2010. Property performance as of trailing 12 month (TTM) June 2014 reported at 71.7% occupancy, $189 ADR, and $135.52 RevPAR, a decline from YE December 2013 at 75% occupancy, $190.62 ADR, and $142.95 RevPAR. The borrower had replaced the property management company in 2013 to help improve the property's performance. The loan remains current as of the August 2014 remittance date.
The third largest contributor to Fitch-modeled losses is secured by a 295,000 square foot retail center located in Woonsocket, RI (1.3%). The loan transferred to special servicing in June 2013 due to monetary default. The property had experienced cash flow issues due to the expiration of an anchor tenant's lease in 2013 (Shaw's Supermarket, previously 18% of the net rentable area). The special servicer had pursued foreclosure, and the property became REO as of April 2014. The July 2014 rent roll reported occupancy at 66%. The servicer is in process of stabilizing the asset.
RATING SENSITIVITIES
Rating Outlooks on classes A-4 through AM are expected to remain stable due to sufficient credit enhancement. The ratings reflect conservative estimates on the Atrium Hotel Portfolio due to the large size of the loan (13.4% of the pool) and Fitch's ongoing concerns surrounding the capital improvement needs preceding the franchise agreement expirations. In addition the ratings reflect risks associated with several top-15 loans in secondary or tertiary markets including retail properties (Valdosta - Colonial Mall and Lufkin Mall). Additional downgrades are possible in the future if the franchise agreements are not renewed on the Atrium Portfolio, or should performance decline on the top-15 loans. Conversely, if loss expectations are lower than expected on some of the larger specially serviced or underperforming assets, an upgrade to class AM is possible.
Fitch affirms the following classes:
--$912.2 million class A-4 at 'AAAsf'; Outlook Stable;
--$279.7 million class A-1A at 'AAAsf'; Outlook Stable;
--$242.5 million class AM at 'BBBsf'; Outlook Stable;
--$191 million class AJ at 'CCCsf'; RE 65%;
--$48.5 million class B at 'CCsf'; RE 0%;
--$18.2 million class C at 'CCsf'; RE 0%;
--$48.5 million class D at 'Csf'; RE 0%;
--$21.2 million class E at 'Csf'; RE 0%;
--$19.2 million class F at 'Dsf'; RE 0%;
--$0 million class G at 'Dsf'; RE 0%;
--$0 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, and A-SB certificates have paid in full. Fitch does not rate the class Q certificate or the interest only class XR certificate. Fitch previously withdrew the ratings on the interest-only class XP and 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' (Aug. 4, 2014);
--'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=754389
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=870434
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