CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded four classes and affirmed seven classes of Morgan Stanley Capital I Trust (MSCI) commercial mortgage pass-through certificates, series 2004-TOP13. A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The upgrades follow continued paydown, decreasing leverage and increasing credit enhancement to the bonds. The pool has experienced 93.4% collateral reduction since issuance, with 26 of the original 175 loans still outstanding. 29.4% of the pool is fully amortizing, and 93% of the remaining pool balance is scheduled to mature through 2018. Leverage is considered relatively low, with a weighted-average pool loan to value (LTV) of 65% and a weighted-average pool debt yield of 34.7%.
Apart from the ongoing de-leveraging of the assets, the makeup of the pool's collateral has not changed significantly since Fitch's last rating action. The pool is highly concentrated by loan size, as well as by property type and location. Nearly all of the top 15 loans are secured by properties located in secondary and tertiary markets, and 44.2% of the pool is secured by retail properties. The largest five loans make up 61.7% of the current pool balance. Despite the improved subordination and expected continued paydown, Fitch limited its upgrade actions to four classes and affirmed the remaining seven.
Fitch modelled losses of 8% of the remaining pool; expected losses on the original pool balance total 1.2%, including $10.2 million (0.8% of the original pool balance) in realized losses to date. Two loans, representing 6.7% of the current pool balance, are fully defeased. Two loans, representing 3.9% of the current pool balance, are on the servicer's watchlist.
The largest loan in the pool is Highlander Plaza, an anchored retail property in Salem, Massachusetts. The loan represents 15.4% of the pool balance. Major tenants include Shaw's Supermarket (39.2% of the net rentable area [NRA]), TJMaxx (16.5% of the NRA), Petsmart (13.2% of the NRA) and Planet Fitness (12.4% of the NRA). The subject is shadow-anchored by Target and Home Depot, neither of which act as collateral for the loan. Leases representing 2.2% of the NRA are scheduled to roll prior to maturity. The year-end (YE) 2014 debt service coverage ratio (DSCR) was reported to be 3.41x and the property was 100% occupied according to a June 2015 rent roll.
The largest contributor to expected loss is Smokey Point Shopping Center, which is secured by a retail property in Arlington, Washington. The property was originally built in 1978 and renovated in 1999. Major tenants include Power Alley Fitness (19.3% of the NRA) and Warm Beach Church (19.2% of the NRA). The loan was previously in special servicing after the largest tenant (previously Cycle Barn, 32.9% of the NRA) vacated in 2010 and occupancy dropped to 50%. A modification of the loan was executed shortly before it was scheduled to mature in November 2013. Terms of the modification included a two-year extension of the loan on interest-only (IO) payments, with a conditional option to extend one additional year, $250,000 in principal forgiveness and a debt service reserve funded in the amount of $50,000. The loan's current maturity date is Nov. 1, 2016 and the debt service reserve has not been drawn upon. Based on the original P&I schedule, the YE2014 amortizing DSCR would be 1.02x. According to a March 2015 rent roll, the property was 75% occupied.
RATING SENSITIVITIES
The Rating Outlook on all classes is Stable. Future upgrades are unlikely given the quality of the collateral remaining in the pool and the thinness of the junior classes. Should loan level defaults exceed Fitch's current projections, junior classes could be susceptible to downgrades.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch upgrades the following classes and assigns Rating Outlooks as indicated:
--$12.1 million class E to 'AAAsf' from 'AAsf', Outlook revised to Stable from Positive;
--$9.1 million class H to 'BBBsf' from 'BBsf', Outlook revised to Stable from Positive;
--$3 million class K to 'BBsf' from 'Bsf', Outlook Stable;
--$3 million class M to 'Bsf' from 'CCCsf', Assigned Outlook Stable.
Fitch affirms the following classes:
--$10.1 million class D at 'AAAsf', Outlook Stable;
--$9.1 million class F at 'AAsf', Outlook Stable;
--$10.6 million class G at 'Asf', Outlook Stable;
--$9.1 million class J at 'BBsf', Outlook Stable;
--$3 million class L at 'Bsf', Outlook Stable;
--$4.5 million class N at 'CCsf', RE 100%;
--$3 million class O at 'Csf', RE 20%.
The class A-1, A-2, A-3, A-4, B and C certificates have paid in full. Fitch does not rate the class P certificate. Fitch previously withdrew the ratings on the interest-only class X-1 and X-2 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. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=994353
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=994353
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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