NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded three and affirmed 16 classes of Banc of America Commercial Mortgage (BACM) Inc., commercial mortgage pass-through certificates series 2006-2. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades are due to the increased certainty of losses to the already distressed classes. Fitch modeled losses of 6.2% of the remaining pool; expected losses on the original pool balance total 9%, including $109.2 million (4% of the original pool balance) in realized losses to date. Fitch has designated 36 loans (17.1%) as Fitch Loans of Concern, which includes 12 specially serviced assets (4.9%).
As of the November 2014 distribution date, the pool's aggregate principal balance has been reduced by 20.9% to $2.14 billion from $2.7 billion at issuance. Per the servicer reporting, 10 loans (10.4% of the pool) are defeased. Interest shortfalls are currently affecting classes F through P.
The largest contributor to expected losses is the 55 West & 215 West 125th Street loan (4.2% of the pool), which is secured by two office buildings totaling 376,933 square foot (SF) in Harlem, NY. The collateral has experienced cash flow declines since 2011 due to vacancies, as well as renewed leases at significantly lower rents. Performance has recently improved but remains below expectations. Occupancy reported at 93.3% per the September 2014 rent roll, an increase from 84% in December 2013, 81% in 2012, and 72% in 2011. The combined NOI DSCR improved to 1.0x for YTD September 2014 from 0.83x in December 2013, but remains significantly below issuance at 1.24x. The loan is current as of the November 2014 payment date.
The next largest contributor to expected losses is secured by a 63,866 SF office building located in Fairfax, VA (0.6%). The loan had transferred to special servicing in June 2012 due to payment default. The property had experienced cash flow issues due to declining occupancy, and has been 100% vacant since July 2014. A foreclosure sale was held and the property became REO in October 2014. The servicer is working to lease up and stabilize the property, in preparation for eventual disposition.
The third largest contributor to expected losses is secured by three Wichita, KS retail properties with an aggregate of 360,942 SF (1.2%). The properties have experienced cash flow issues due to occupancy declines, reporting at 65% as of March 2014 compared to 83% in December 2012. As a result, NOI DSCR declined to 0.90x, compared to 1.15x at YE 2013 and 1.24x at YE 2012. The loan transferred to special servicing in July 2014 due to monetary default. The borrower has requested a loan modification and the special servicer continues negotiations with the borrower while dual-tracking foreclosure until a resolution is achieved.
RATING SENSITIVITY
Rating Outlooks on classes A-3 through A-M remain Stable due to sufficient credit enhancement and continued paydown. Rating Outlooks on classes A-J, B and C are Negative as further collateral underperformance may lead to downgrades, in addition to concentration concerns of upcoming loan maturities over the next 24 months. Should cash flows deteriorate further on the performing loans, or if realized losses exceed current expectations on the specially serviced loans, downgrades to these classes are possible.
Fitch downgrades the following classes:
--$40.5 million class D to 'CCsf' from 'CCCsf'; RE 40%;
--$27 million class E to 'Csf' from 'CCsf'; RE 0%;
--$30.4 million class F to 'Csf' from 'CCsf'; RE 0%.
Fitch affirms the following class and revises the Rating Outlook as indicated:
--$215.9 million class A-J at 'BBBsf'; Outlook to Negative from Stable.
Fitch affirms the following classes:
--$28.1 million class A-3 at 'AAAsf'; Outlook Stable;
--$20.3 million class A-AB at 'AAAsf'; Outlook Stable;
--$1.3 billion class A-4 at 'AAAsf'; Outlook Stable;
--$117.5 million class A-1A at 'AAAsf'; Outlook Stable;
--$269.9 million class A-M at 'AAAsf'; Outlook Stable;
--$50.6 million class B at 'BBsf'; Outlook Negative;
--$27 million class C at 'Bsf'; Outlook Negative;
--$27 million class G at 'Csf'; RE 0%;
--$12.3 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 O at 'Dsf'; RE 0%.
The class A-1 and A-2 certificates have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the rating on the interest-only class XW 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=941455
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