NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded one class and affirmed 14 classes of Morgan Stanley Capital I Trust's commercial mortgage pass-through certificates, series 2005-IQ9. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrade of class A-J reflects increasing credit enhancement from paydown including the recent pay-off of the previous largest loan, 125 Park Avenue. The affirmations of the remaining Fitch rated classes are due to stable performance of the pool since the last rating action. Fitch modeled losses of 13.3% of the remaining pool; expected losses on the original pool balance total 5.0%, including $23.4 million (1.5% of the original pool balance) in realized losses to date. There are five specially serviced assets (34.7% of the pool) as of the October 2014 remittance.
As of the October 2014 distribution date, the pool's aggregate principal balance has been reduced by 73.7% to $402.8 million from $1.53 billion at issuance, which includes the recent pay-off of the 125 Park Avenue loan. Per the servicer reporting, three loans (5.2% of the pool) are defeased. Interest shortfalls are currently affecting classes K through P.
The largest contributor to expected losses (29.8% of the pool) is the specially-serviced Central Mall Portfolio, which is secured by a three-property mall portfolio (1,752,673 square feet [sf]). The assets are located in tertiary markets (Lawton, OK, Texarkana, TX, and Port Arthur, TX) and anchor tenants in each mall include Sears, JC Penney, and Dillard's. The loan transferred to special servicing in early October 2014 for imminent default, as the December 2014 maturity date is approaching without a confirmed pay-off. A potential sale for the Texarkana property is pending and the borrower is working towards a refinance on the remaining two properties; however, payoff of loan prior to maturity is uncertain. As of YTD June 2014, the reported portfolio occupancy and NOI DSCR was 92% and 1.29x, respectively.
The second largest contributor to expected losses is a specially-serviced loan (2.5% of the pool) secured by a 147,377-sf light industrial facility consisting of 11 buildings, located in West Palm Beach, FL. Previously the loan transferred to special servicing in June 2009 and was returned to the master servicer in January 2012 as a corrected loan. The loan was transferred back to special servicing in June 2014, as the borrower has failed to make cash collateral reserve payments. Occupancy has improved since 2012; however, as of YE 2013 occupancy was 78% with a 0.88x NOI DSCR.
The third largest contributor to expected losses is a specially-serviced loan (1.6% of the pool), which is secured by a 441-unit co-op in Decatur, GA. The loan transferred to special servicing in February 2012. The borrower experienced financial hardships due to prior mismanagement and increasing vacancy as a result of the poor condition of the units. There are over 180 down units that are not rentable and there is insufficient cash flow to renovate the units. Per the special servicer, the current strategy is a note sale.
RATING SENSITIVITY
Fitch applied additional stress scenarios in order to determine upgrades including applying additional cash flow stresses to the pool and deterministic tests to underperforming assets. The ratings of the senior classes are expected to remain stable as it is anticipated that credit enhancement will increase due to scheduled paydown from loan pay-offs at maturity. Future upgrades to classes B and C are unlikely due to the past history of interest shortfalls and the likelihood that they may recur. Further, a stress test performed on the Central Mall Portfolio indicated that classes B and below are sensitive to fluctuations in loan performance. Rating Outlooks on classes E, F and G are Negative as they may be subject to future rating actions should loans not refinance at their expected maturity dates and realized losses be greater than Fitch's expectations.
Fitch upgrades the following classes as indicated:
--$130.2 million class A-J to 'AAAsf' from 'AAsf', Outlook Stable.
Fitch affirms the following classes as indicated:
--$119.8 million class A-1A at 'AAAsf', Outlook Stable;
--$32.6 million class B at 'Asf', Outlook Stable;
--$11.5 million class C at 'Asf', Outlook Stable;
--$26.8 million class D at 'BBB+sf', Outlook Stable;
--$15.3 million class E at 'BBBsf', Outlook Negative;
--$15.3 million class F at 'BBsf', Outlook Negative;
--$11.5 million class G at 'Bsf', Outlook Negative;
--$17.2 million class H at 'CCCsf', RE 35%;
--$5.7 million class J at 'CCCsf', RE 0%;
--$7.7 million class K at 'CCsf', RE 0%;
--$5.7 million class L at 'Csf', RE 0%;
--$3.4 million class M at 'Dsf', RE 0%;
--$0 class N at 'Dsf', RE 0%;
--$0 class O at 'Dsf', RE 0%.
The class A-1, A-2, A-3, A-4, A-5 and A-AB certificates have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the ratings on the interest-only class X-1, X-2 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' (August 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=900194
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