Fitch Downgrades 2 Classes of Key 2007-SL1

CHICAGO--()--Fitch Ratings has affirmed 11 classes of Key Commercial Mortgage Securities Trust commercial mortgage pass-through certificates series 2007-SL1. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The downgrades reflect the losses expected from the specially serviced asset and the potential for other loans defaulting at maturity. Within the next eighteen months, 43% of the pool is scheduled to mature. Fitch modeled losses of 20% of the remaining pool; expected losses on the original pool balance total 9%, including $10 million (4.2% of the original pool balance) in realized losses to date. Fitch has designated 21 loans (46.9%) as Fitch Loans of Concern, which includes one specially serviced asset (4%).

As of the February 2015 distribution date, the pool's aggregate principal balance has been reduced by 75.9% to $57.1 million from $237.5 million at issuance. No loans are defeased. Interest shortfalls are currently affecting classes D through L.

The largest contributor to expected losses is the specially-serviced asset (4% of the pool), which is secured by a 117,208 square foot (sf) retail property located in Conneaut, OH, which is approximately 70 miles east of Cleveland. The property was anchored by Kmart, but the tenant vacated upon the lease expiration in June 2014. Per the servicer, only two tenants remain at the property and current occupancy is reported to be 7.9%. Due to the vacancy issues and reports of major roof damage, the borrower has consented to a foreclosure judgment. A foreclosure sale is set for March 16, 2015.

The next largest contributor to expected losses (10.2%) is secured by a 72,374 sf mixed-use property (retail/self-storage) located in Kent, WA, which is approximately 20 miles south of Seattle. The debt service coverage ratio as of year-end (YE) 2013 was reported to be 0.97x which is a slight increase from the 0.93x reported at YE 2012. The loan has been operating below 1.0x since 2010 due to soft market conditions. According to the December 2013 rent roll, the property is 100% occupied.

The third largest contributor to expected losses (4.7%) is secured by a 13,775 sf retail property located in the downtown shopping district of Kirkland, WA. Occupancy was reported to be 100% as of March 2014 with most of the boutique tenants on short term leases. As of YE 2013, the DSCR was reported to be 0.93x which is in line with YE 2012. An increase in expenses has caused the decline in performance since issuance.

RATING SENSITIVITIES

Rating Outlooks on classes A-2 and A-1A remain Negative due to the transaction's geographic concentration in Washington (47%) and Ohio (27%) and the high number of Fitch Loans of Concern (47%). These classes may be downgraded if additional loans transfer to special servicing or performance of the pool continues to deteriorate. The distressed classes rated 'CCC' and below may be subject to further downgrades as losses are realized or additional loans default.

Fitch downgrades the following classes and revises Recovery Estimates (REs) as indicated:

--$5.6 million class C to 'CCsf' from 'CCCsf'; RE 60%;

--$4.8 million class D to 'Csf' from 'CCsf'; RE 0%.

Fitch affirms the following classes as indicated:

--$22.3 million class A-2 at 'BBBsf'; Outlook Negative;

--$16.6 million class A-1A at 'BBBsf'; Outlook Negative;

--$5.3 million class B at 'CCCsf'; RE 100%;

--$2.1 million class E at 'Csf'; RE 0%;

--$415,662 class F at 'Dsf'; RE 0%;

--$0 class G at 'Dsf'; RE 0%;

--$0 class H at 'Dsf'; RE 0%;

--$0 class J at 'Dsf'; RE 0%;

--$0 class K at 'Dsf'; RE 0%.

The class A-1 certificates have paid in full. Fitch does not rate the class L, R and LR 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. 10, 2014 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. 10, 2014).

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=812608

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980365

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Daniel Anderson, +1-312-606-2305
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Daniel Anderson, +1-312-606-2305
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com