Fitch Downgrades Two and Affirms 18 Classes of MSCI 2007-HQ12

NEW YORK--()--Fitch Ratings has downgraded two classes and affirmed 18 classes of Morgan Stanley Capital I Trust (MSCI) commercial mortgage pass-through certificates series 2007-HQ12. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations of the senior classes are the result of sufficient credit enhancement relative to pool expected losses. The downgrades of the two subordinate classes reflect a high modeled loss of the remaining pool. Fitch modeled losses of 16.2% for the remaining pool; expected losses on the original pool balance total 8.5%, including $61.5 million (3.1% of the original pool balance) in realized losses to date. There are eight specially serviced assets (13.1%). Fitch's stressed analysis indicates some of the more highly leveraged loans may have trouble refinancing and could default. Fitch has applied additional stresses in its base case analysis to factor in the refinancing risks.

As of the September 2016 remittance report, the pool's aggregate principal balance has been reduced by 66.5% to $673.40 million from $2.01 billion at issuance. Interest shortfalls totalling $11.6 million are affecting classes F through S. Excluding the eight specially serviced loans, approximately 82% of the remaining pool is scheduled to mature in the next 12 months, including one anticipated repayment date (ARD) loan (8.6%) and the six defeased loans (4.1%). In addition, three loans (4%) will mature by year-end (YE) 2017.

There were variances from criteria related to classes A-J and A-JFL for which the model output suggested that upgrades were possible. Fitch determined that upgrades are not warranted at this time as the pool has become more concentrated, modeled loss on the remaining pool remains high and additional loans have become specially serviced or real-estate owned (REO) with a possibility for interest shortfalls.

The largest contributor to Fitch's modeled losses is the REO Timberland Buildings asset (4.9% of the pool), which is an approximately 354,300 square foot (sf) office property located in Troy, MI. The loan transferred to special servicing in September 2012 for imminent default. The servicer-reported occupancy was 49% as of August 2016.

The second largest modeled loss is Somerset Crossing (3.8%), a loan secured by a 104,128 sf grocery-anchored center located in Gainesville, VA. The asset transferred to the special servicer in late September 2016 for imminent maturity default. The property is reported at 94.6% occupancy; however, the largest tenant, Shoppers Warehouse (64.4% of the space), went dark in 2011 and a replacement tenant has not been found. Shoppers' lease expires in 2023 and the retailer still pays rent. The loan's scheduled maturity date is April 2017.

The third largest modeled loss is a REO office property (1.9%) located in Long Beach, CA adjacent to the runway of the Long Beach airport. The 150,000 sf asset transferred to Special Servicer in February 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. Occupancy is now reported at 21% as of August 2016.

RATING SENSITIVITIES

The Positive Outlook on classes A-J and A-JFL reflect the possibility of an upgrade if loans pay off at maturity and the classes will not receive interest shortfalls. The Stable Outlooks are due to sufficient CE and the expectation for continued pay down. The Negative Outlook on class C is for the potential for downgrade if additional loans fail to pay off at scheduled maturity. The distressed classes (those rated below 'B-sf') may be subject to further downgrades as additional losses are realized.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has downgraded the following ratings:

-- $24.5 million class D to 'CCCsf' from 'Bsf'; RE 80%;

-- $22 million class G to 'Csf' from 'CCsf'; RE 0%.

Fitch has affirmed the following ratings and revised Rating Outlooks as indicated:

-- $147.3 million class A-1A at 'AAAsf'; Outlook Stable;

-- $170.9 million class A-M at 'AAAsf'; Outlook Stable;

-- $25 million class A-MFL at 'AAAsf'; Outlook Stable;

-- $53 million class A-J at 'Asf'; Outlook to Positive from Stable;

-- $91.4 million class A-JFL at 'Asf'; Outlook to Positive from Stable;

-- $41.6 million class B at 'BBBsf'; Outlook Stable;

-- $22 million class C at 'BBsf'; Outlook to Negative from Stable;

-- $14.7 million class E at 'CCCsf'; RE 0%.

-- $24.5 million class F at 'CCsf'; RE 0%;

-- $22 million class H at 'Csf'; RE 0%;

-- $14.4 million class J at 'Dsf'; RE 0%.

The fully depleted classes K, 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, A-4 and A-5 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

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/site/re/873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013169

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013169

Endorsement Policy
https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Jeffrey Diliberto, +1-312-368-3268
Director
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
R. Brook Sutherland, +1-312-606-2346
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Jeffrey Diliberto, +1-312-368-3268
Director
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
R. Brook Sutherland, +1-312-606-2346
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com