CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded one class and affirmed 19 classes of Merrill Lynch Mortgage Trust (MLMT 2006-C1) commercial mortgage pass-through certificates series 2006-C1. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrade is a result of higher expected losses for the pool compounded by limited progress toward resolution of assets in special servicing. The affirmations reflect sufficient credit enhancement relative to Fitch expected losses. Fitch modeled losses of 14.6% of the remaining pool; expected losses on the original pool balance total 12.5%, including $52.8 million (2.1% of the original pool balance) in realized losses to date. Fitch has designated 62 loans (28.5%) as Fitch Loans of Concern, which includes 23 specially serviced assets (16.6%).
As of the September 2014 distribution date, the pool's aggregate principal balance has been reduced by 28.6% to $1.78 billion from $2.49 billion at issuance. Per the servicer reporting, 13 loans (4.8% of the pool) are defeased. Interest shortfalls are currently affecting classes C through Q.
Of the loans in special servicing, 21 assets (14.7% of pool balance) are real-estate owned (REO), one asset (1%) is in foreclosure and one loan (0.2%) is 90 days delinquent.
The largest contributor to expected losses (3.1% of pool balance) is a 298,865 square foot (sf) REO asset consisting of two three-story office buildings located in Scottsdale, AZ. The asset transferred to special servicing in October 2009 when the largest tenant (50% of the total net rentable area [NRA]) exercised its early termination option and vacated. As of August 2014, occupancy for the property improved to 77% due to the execution of a new lease with the Vanguard Group for 148,000 sf in December 2013. According to Reis, the Scottsdale office submarket of Phoenix continues to have a high vacancy rate of 26% with average asking rents of $25.11 per square foot (psf) compared to $17.64 psf for the subject property.
The next largest contributor to expected losses (5.1%) is a 326,535 sf REO asset consisting of two office buildings in Cerritos, CA. The loan transferred to special servicing in June 2013 for imminent default and became REO in February 2014. The servicer is in final stages of negotiation on a renewal and downsizing of the single tenant and has executed a direct lease with a subtenant. Servicer has reported substantial interest on the vacant space and is in active negotiations with a new prospect. According to Reis, the East County office submarket of Los Angeles had a vacancy rate of 13.5% with average asking rents of $26.86 psf.
The third largest contributor to expected losses (1.3%) is a 356,061 sf office building located in downtown Cincinnati, OH. The loan transferred to special servicing in June 2008 for imminent default and became REO in March 2010. As of August 2014, occupancy for the building declined to 67% from 70% in September 2013. The occupancy is expected to decline further with the second largest tenant in the building (11% of NRA) indicating plans to vacate at lease expiration in early 2015. Approximately 16% of the NRA expires through 2015. According to Reis, the CBD office submarket of Cincinnati had a vacancy rate of 18.1% with average asking rents of $19.45 psf compared to $16.40 psf for the subject property.
RATING SENSITIVITIES
Fitch expects the ratings on the 'AAA' rated classes, A-3 through A-1A to remain stable due to increasing credit enhancement and continued paydown. Fitch performed additional stresses when considering the Outlook for class A-M and expects the class to remain stable due to sufficient credit enhancement. Distressed classes (those rated below 'B') may be subject to further downgrades as additional losses are realized.
Fitch downgrades the following class as indicated:
--$249 million class A-M to 'AAsf' from 'AAAsf', Outlook to Stable from Negative.
Fitch affirms the following classes as indicated:
--$95.1 million class A-3 at 'AAAsf', Outlook Stable;
--$25 million class A-3B at 'AAAsf', Outlook Stable;
--$30 million class A-SB at 'AAAsf', Outlook Stable;
--$753.4 million class A-4 at 'AAAsf', Outlook Stable;
--$180.8 million class A-1A at 'AAAsf', Outlook Stable;
--$217.9 million class A-J at 'CCCsf', RE 90%;
--$56 million class B at 'CCsf', RE 0%;
--$28 million class C at 'Csf', RE 0%;
--$31.1 million class D at 'Csf', RE 0%;
--$18.7 million class E at 'Csf', RE 0%;
--$28 million class F at 'Csf', RE 0%;
--$21.8 million class G at 'Csf', RE 0%;
--$24.9 million class H at 'Csf', RE 0%;
--$6.2 million class J at 'Csf', RE 0%;
--$9.3 million class K at 'Csf', RE 0%;
--$3.2 million 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 and A-2 certificates have paid in full. Fitch does not rate the class Q certificates. Fitch previously withdrew the rating on the interest-only class X 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=900074
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