CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded three classes and affirmed nine classes of WaMu Commercial Mortgage Securities Trust commercial mortgage pass-through certificates series 2007-SL2. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrades reflect lower loss expectations and increasing credit enhancement. The affirmations reflect overall low collateral quality and concerns related to the historically high loss severities for small balance loans. Furthermore, 76% of the loans do not mature until 2036 leaving the pool susceptible to economic volatility over a long time horizon. Fitch modeled losses of 10.1% of the remaining pool; expected losses on the original pool balance total 5.8%, including $28.5 million (3.4% of the original pool balance) in realized losses to date. Fitch has designated 35 loans (15.6%) as Fitch Loans of Concern, which includes four specially serviced assets (1.9%).
As of the April 2016 distribution date, the pool's aggregate principal balance has been reduced by 75.5% to $206.2 million from $842.1 million at issuance. No loans are defeased. Interest shortfalls are currently affecting classes G through N.
The largest contributor to expected losses is a real estate owned (REO) asset (1.6% of the pool) that consists of a 26,872 square foot (sf) mixed use property located in Lynbrook, NY. The loan had transferred to the special servicer in June 2010 due to payment default and became REO in October 2014. The property is being repositioned with new tenants before being put on the market; an asking price is still being determined. The occupancy was reported to be 54% as of March 2016.
The next largest contributor to expected losses is secured by a 50-unit multi-family property (0.9% of the pool) located in Marysville, CA, which is roughly 40 miles north of Sacramento. Occupancy was reported to be 90% as of March 2015 and the debt service coverage ratio (DSCR) was reported at 0.59x as of December 2014. The borrower hopes to improve cash flow at the property by continuing to increase occupancy.
The third largest contributor to expected losses is secured by an 18-unit multi-family property (0.4%) located in Takoma Park, MD, approximately 30 miles north of Washington, D.C. Despite high occupancy, the property's DSCR has been below 1.0x for the past several years. The year-end 2014 DSCR was 0.14x with occupancy at 89%. The loan remains current.
RATING SENSITIVITIES
The Rating Outlooks on classes A1A and B remain Stable due to their seniority and expected continued paydown from the nearly 20% of the pool maturing in the fourth quarter of 2016. Although credit enhancement for these classes is high compared to other multi-borrower transactions, further upgrades are not warranted at this time due to the small balance nature of the loans, which have higher loss severities than traditional loans.
A Stable Rating Outlook has been assigned to class C to reflect sufficient credit enhancement. Further upgrades were limited to this class based on the potential for additional loan defaults and the thinness of the subordinate classes. Distressed classes (those rated below 'Bsf') may be subject to further rating actions as losses are realized.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following classes and assigned Rating Outlooks as indicated:
--$115.7 million class A1A to 'Asf' from 'BBB-sf'; Outlook Stable;
--$17.9 million class B to 'BBBsf' from 'BBsf'; Outlook Stable;
--$25.3 million class C to 'Bsf' from 'CCCsf'; Outlook Stable Assigned.
Fitch has affirmed the following classes:
--$16.8 million class D at 'CCsf'; RE 100%;
--$6.3 million class E at 'Csf'; RE 35%;
--$7.4 million class F at 'Csf'; RE 0%;
--$13.7 million class G at 'Csf'; RE 0%;
--$3.2 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%.
The class A certificates have paid in full. Fitch does not rate the class N certificates. Fitch previously withdrew the rating on the interest-only class X certificates.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Rating Caps and Limitations in Global Structured Finance
Transactions (pub. 28 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781
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=1003988
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003988
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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