NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded eight classes, downgraded one distressed class and affirmed 12 classes of Morgan Stanley Capital I Trust (MSCI) commercial mortgage pass-through certificates series 2007-HQ12. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrades reflect an increase in credit enhancement due to the full payoff of the modified Columbia Center loan. Fitch had previously modeled a full loss on the $80 million B-note. In addition, interest shortfalls on the A-J classes through E have been recovered. Fitch modeled losses of 12.6% of the remaining pool; expected losses on the original pool balance total 7.4%, including losses already incurred. The modeled loss amount is significantly lower than Fitch's previous rating action in February 2015 as higher recoveries were received on disposed assets.
As of the October 2015 distribution date, the pool's aggregate principal balance has been reduced by 64.8% to $689.8 million from $1.96 billion at issuance. Four loans are defeased (2.6% of the pool). The pool has experienced $61.1 million 3.1% of the original pool balance) in realized losses to date. Interest shortfalls totaling $10.3 million are currently affecting classes F through S. Fitch has designated 26 loans (35.2%) as Fitch Loans of Concern, which includes seven specially serviced assets (9.1%) and previously modified loans.
The Beacon Seattle & DC Portfolio remains the largest contributor to modeled losses. The loan was initially secured by a portfolio consisting of 16 office properties, the pledge of the mortgage and the borrower's ownership interest in one office property, and the pledge of cash flows from three office properties. In aggregate, the initial portfolio of 20 properties comprised approximately 9.8 million square feet (sf) of office space. The loan was transferred to special servicing in April 2010 for imminent default and was modified in December 2010. Eight properties remain as one property was sold since Fitch's prior rating action which resulted in no principal pay down to the pari passu piece in transaction.
Key modification terms included a five-year extension of the loan to May 2017, a deleveraging structure that provided for the release of properties over time, and an interest rate reduction. The loan was returned to the master servicer in May 2012 and is performing under the modified terms. As of June 2015, the portfolio occupancy of the remaining eight properties increased to 84.8% from 82% at year-end 2014.
The largest specially serviced asset is the real estate owned (REO) Timberland Buildings, which is secured by an approximately 354,300 sf office property located in Troy, MI. The loan transferred to special servicing in September 2012 for imminent default. The reported occupancy was 45% as of Dec. 2014 though servicer notes have indicated renewals and new leases have been signed.
The third largest modeled loss is a REO office property located in Long Beach, CA adjacent to the runway of the Long Beach airport. The 150,000 sf asset transferred to Special Servicer on Feb. 13, 2013, because of imminent default due to the sole tenant vacating. The building is on a ground lease with the City of Long Beach that expires in 2050.
RATING SENSITIVITIES
The Stable Outlooks reflect no significant change in modeled losses on the remaining loans in the pool and the uncertainty regarding the timing of pay down from dispositions of the Beacon Seattle & DC Portfolio assets. The distressed classes may be subject to further downgrades if losses to defaulted loans are higher than expected.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following ratings:
--$170.9 million class A-M to 'AAAsf' from 'BBBsf'; Outlook to Stable from Positive;
--$25 million class A-MFL to 'AAAsf' from 'BBBsf'; Outlook to Stable from Positive;
--$53 million class A-J to 'Asf' from 'Bsf'; Outlook Stable;
--$91.4 million class A-JFL to 'Asf' from 'Bsf'; Outlook Stable;
--$41.6 million class B to 'BBBsf' from 'CCCsf'; Assign Outlook Stable;
--$22 million class C to 'BBsf' from 'CCCsf'; Assign Outlook Stable;
--$24.5 million class D to 'Bsf' from 'CCsf'; Assign Outlook Stable;
--$14.7 million class E to 'CCCsf' from 'CCsf'; RE 100%.
Fitch has downgraded the following class due to realized losses:
--$67,672 class K to 'Dsf' from 'Csf'; RE 0%.
Fitch affirms the following classes:
--$156.8 million class A-1A at 'AAAsf'; Outlook Stable;
--$6.5 million class A-5 at 'AAAsf'; Outlook Stable;
--$24.5 million class F at 'CCsf'; RE 5%;
--$22 million class G at 'CCsf'; RE 0%;
--$22 million class H at 'Csf'; RE 0%;
--$14.7 million class J at 'Csf'; RE 0%.
Classes L, M, N, O, P and Q are affirmed at 'Dsf', RE 0% due to realized losses.
The class A-1, A-2, A-2FL, A-2FX, A-3 and A-4 certificates have paid in full. Fitch does not rate the class S certificates. Fitch previously withdrew the rating on the interest-only class X certificates.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993848
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993848
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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