NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded two and affirmed 20 classes of ML-CFC Commercial Mortgage Trust, commercial mortgage pass-through certificates series 2007-8 (ML-CFC 2007-8). A full list of rating actions follows at the end of this ratings action commentary.
KEY RATING DRIVERS
The upgrades reflect the overall improved performance of the underlying collateral pool and the increase in defeasance since Fitch's last rating action. Fitch modeled losses of 19.1% of the remaining pool; expected losses on the original pool balance total 18.1%, including $116.7 million (4.8% of the original pool balance) in realized losses to date. Fitch has designated 66 loans (53.1% of the current pool balance) as Fitch Loans of Concern, which includes 12 specially serviced assets (26.9%).
As of the December 2015 distribution date, the pool's aggregate principal balance has been reduced by 30.4% to $1.69 billion from $2.44 billion at issuance. According to servicer reporting, 14 loans (7.8%) are defeased, compared to seven loans at the last rating action. Cumulative interest shortfalls totaling $51.7 million are currently affecting classes AJ and AJ-A through T.
The largest contributor to Fitch-modeled losses, which remains the same since the last rating action, is the former Empirian Multifamily Portfolio Pool 2 loan (17.9%). The loan, which was initially secured by a portfolio of 73 multifamily properties totaling 6,892 units located across eight states, was transferred to special servicing in December 2010 for imminent default. In June 2012, the loan was modified, splitting the original debt into 73 individual notes corresponding to the 73 multifamily assets that make up the portfolio.
Legal counsel was retained to initiate foreclosure across the entire portfolio. Between 2012 and 2013, a total of 17 assets were foreclosed, including all 14 of the Georgia properties (1,218 units), the single Michigan property (101 units), and the two South Carolina properties (187 units). Between 2013 and 2014, 15 of these assets (1,332 units) have been sold. The two remaining real-estate owned (REO) assets, which are located in Georgia and South Carolina, are being held by the special servicer to address deferred maintenance issues prior to disposition.
For the remaining 56 properties (5,386 units) located across five states, an A/B loan modification and assumption closed in July 2015. These properties were purchased by a new borrower, whom contributed $17 million of new equity. The loan was modified into a $205 million A-note and a $111.9 million B-note. The maturity date remains unchanged in June 2017; however, two additional one-year extension options were added. Both occupancy and cash flow has improved for these properties. As of April 2014, occupancy was 84%, compared to 78% at year-end 2013. The 2014 net operating income of $12.3 million improved nearly 58% from $7.8 million in 2013.
The next largest contributor to Fitch-modeled losses is the Hilltop Plaza asset (1.4%). The loan was transferred to the special servicer in August 2013 for imminent default. The asset, which became REO in October 2015, is a 171,797 square foot (sf) retail property located in the Cleveland suburb of Richmond Heights, OH. As of the June 2015 rent roll, occupancy was 83.6%, which is below the 97% reported at issuance. However, a seasonal Halloween tenant that occupied 16.8% of the net rentable area (NRA) vacated, as the tenant was on a short-term lease through the end of November. Excluding this tenant, property occupancy was 66.8%. The property is anchored by a local grocer, Dave's Supermarket (32.2% of NRA), with a lease expiring in December 2018. Lease rollover is concentrated in 2017 and 2018 for 18.1% and 39.5% of the NRA, respectively. Given the asset just recently became REO, the special servicer continues to evaluate and develop a workout strategy.
The third largest contributor to Fitch-modeled losses is Douglas Corporate Center I & II asset (2.1%) The loan was transferred to the special servicer in March 2011 for imminent default. The asset, which became REO in January 2013, is a two building, three-story, 213,982 sf office property located in Roseville, CA. The special servicer continues to engage in a value-add strategy for the asset through negotiating renewals with in-place tenants, as well as addressing proposals for potential new leasing. As of the September 2015 rent roll, the asset was 80.5% occupied. Near-term lease rollover concerns include 23.7% of the NRA in 2016 and 18.5% in 2017. The Roseville office submarket reported a high vacancy of 25.1%, according to REIS as of third quarter 2015. In-place base rents averaging $28 per sf (psf) is also above REIS-reported asking rents of $23.62 psf.
RATING SENSITIVITIES
The Stable Outlook on class A-SB reflects the class' seniority and expected payoff in the near term. The Rating Outlooks on classes A-3 and A-1A were revised to Stable from Negative due to improved cash flow performance and expected continued paydown. Distressed classes (those rated below 'Bsf') may be subject to further downgrades as additional losses are realized.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded and assigned Rating Outlooks to the following classes:
--$126.9 million class AM to 'Bsfsf' from 'CCCsf'; Outlook Stable;
--$116.6 million class AM-A to 'Bsfsf' from 'CCCsf'; Outlook Stable.
In addition, Fitch has affirmed and revised Rating Outlooks for the following classes:
--$2.9 million class A-SB at 'AAAsf'; Outlook Stable;
--$655.8 million class A-3 at 'AAsf'; Outlook to Stable from Negative;
--$422.1 million class A-1A at 'AAsf'; Outlook to Stable from Negative;
--$109.4 million class AJ at 'Csf'; RE 25%;
--$100.6 million class AJ-A at 'Csf'; RE 25%;
--$12.2 million class B at 'Csf'; RE 0%;
--$39.6 million class C at 'Csf'; RE 0%;
--$27.4 million class D at 'Csf'; RE 0%;
--$9.1 million class E at 'Csf'; RE 0%;
--$18.3 million class F at 'Csf'; RE 0%;
--$21.3 million class G at 'Csf'; RE 0%;
--$32.5 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 P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%;
--$0 class S at 'Dsf'; RE 0%.
The class A-1 and A-2 certificates have paid in full. Fitch does not rate class T. Fitch previously withdrew the rating on the interest-only class X.
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=996991
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996991
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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.