CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded two and affirmed 19 classes of ML-CFC Commercial Mortgage Trust commercial mortgage pass-through certificates series 2007-6. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades are the result of increasing expected losses on the specially serviced loans. Fitch has designated 48 loans (35%) as Fitch Loans of Concern, which includes 16 specially serviced assets (25%). Of the 16 specially serviced assets, 11 of them, or 18.9% of the total pool, are real estate owned (REO) (including Stuyvesant Town/Peter Cooper Village, 11%) and an additional two, or 0.5%, are in foreclosure.
The affirmations are the result of overall stable performance since Fitch's last rating action; the senior class's credit enhancement has benefited from additional paydown since the last review which offsets the overall slight increase in modeled losses.
Fitch modeled losses of 20.7% of the remaining pool; expected losses on the original pool balance total 19.6%, including $40.1 million (1.9% of the original pool balance) in realized losses to date. At Fitch's last review, expected losses on the original pool balance were 18%.
As of the September 2014 distribution date, the pool's aggregate principal balance has been reduced by 14.3% to $1.8 billion from $2.15 billion at issuance. Per the servicer reporting, two loans (1.5% of the pool) are defeased, the largest of which is the 17th largest in the pool. Interest shortfalls are currently affecting classes AJ through Q and total $41.8 million.
The largest contributor to expected losses is the MSKP Retail Portfolio A loan (12.2% of the pool), which is secured by eight neighborhood, regional, and power centers located in four distinct markets in Florida totaling 1.2 million sf. Five properties are located in the Orlando metropolitan statistical area (MSA), one in the Palm Beach MSA, one in the Ft. Lauderdale MSA, and one in Port Charlotte in southwest Florida. Overall property performance declined significantly from issuance to 2012 due to weak local retail markets, which resulted in lower rents and a drop in occupancy from 88% at issuance to 78% at year-end 2012. Recent performance has improved, with a 1H 2014 DSCR of 1.47x and occupancy of 82%.
After initially being transferred to the special servicer in March 2011, the portfolio was returned to the master servicer as a modified loan in October 2012 and removed from the master servicer's watchlist in April 2014. Terms of the modification included the bifurcation of the loan into a senior ($130.3 million) and junior ($93.1 million) component with maturity being extended to March 2019; both notes will retain the original note rate of 5.6% and remain as interest only through maturity. Although losses are not expected imminently, any recovery to the subject B-note is contingent upon full recovery to the A-note proceeds at the loan's maturity in March 2019. Fitch modeled losses based on the stressed annualized net operating income (NOI) from June 2014. Unless collateral performance improves more significantly, recovery to the B-note component is unlikely.
The next largest contributor to expected losses is the specially-serviced Peter Cooper Village/Stuyvesant Town (PCV/ST) (10.6% of the pool), which is a 56-building multi-family complex with 11,227 units located on the east side of Manhattan in New York City. The loan transferred to special servicing in November 2009 at the borrowers request. Subsequently, in October 2012 PCV/ST suffered damage from Hurricane Sandy; property restoration efforts are nearing completion. The final projects include the new management office and a new day care center located in the old management office space, both of which are expected to be completed by the end of 2014. The special servicer continues to pursue the remaining claim amounts from the insurance providers.
On June 3, 2014, the trust received title to the property via deed-in-lieu of foreclosure which canceled the UCC foreclosure action which had previously been initiated. On July 3, 2014, certain mezzanine lenders who had recently purchased their positions filed a complaint alleging that the deed-in-lieu breached the terms of the intercreditor agreement, among other claims. These mezzanine lenders are pursuing damages from the special servicer as Senior Lender. The special servicer filed a motion to dismiss on August 18, 2014. Per the special servicer, the current and future legal fees are anticipated to be covered by property operations; therefore, additional fees will not be taken from the trust's interest. Any potential sale of the property cannot occur until this litigation is resolved; therefore, Fitch is not expecting an imminent resolution.
In November 2012 the special servicer (CWCapital) announced a settlement to The Roberts Litigation to address historical overcharges and future rents for over 4,300 units. Final approval for the settlement was received in April 2013 and it is anticipated that implementation will take approximately 18 months. According to the special servicer, the implementation is proceeding on schedule.
An updated 2014 appraisal is still pending; therefore, Fitch continues to model losses based on the proportional amount of the most-recent $3.4 billion appraisal (September 2013) less assumed fees and expenses. Property performance continues to improve with 99% occupancy as of September 2014.
The third largest contributor to expected losses is the MSKP Retail Portfolio B loan (3.2%), which is secured by one grocery-anchored and one unanchored retail center in two distinct markets in Florida with a total of 207,715 sf. The grocery-anchored center is located in Ft. Lauderdale, and the unanchored center is located in Palm Beach County. Total occupancy on the portfolio declined from 92% at issuance to 78% at year-end 2013, driven by occupancy at the Palm Beach County property. Combined occupancy has increased slightly to 81% as of June 2014, and the DSCR has improved to 1.30x as of YE 2013 and June 2014 from less than 1.0x in 2012. After initially being transferred to the special servicer in March 2011, the portfolio was returned to the master servicer as a modified loan in October 2012. Terms of the modification included the bifurcation of the loan into a senior ($29.7 million) and junior ($29.7 million) component with maturity being extended to March 2019; both notes will retain the original note rate of 5.53% and remain as interest-only through maturity. Although losses are not expected imminently, any recovery to the subject B-note is contingent upon full recovery to the A-note proceeds at the loan's maturity in March 2019. Unless collateral performance improves, recovery to the B-note component is unlikely.
The Rating Outlooks on classes A-2 and A-2FL remain Stable due to the senior payment priority in the capital structure and likelihood of near-term payoff. Fitch ran additional model scenarios assuming full recovery on the PCV/ST loan, as well as scenarios assuming lower recovery based on a stressed value. The current Negative Rating Outlooks on classes A-3, A-4, A-1A and A-M are based on the potential for losses on PCV/ST loan, as well as the expected losses on the assets in special servicing. These classes may be subject to downgrades if pool performance continues to deteriorate, the specially serviced assets are not disposed timely and result in higher than expected losses, and/or if the PCV/ST loan is expected to resolve with higher losses than currently expected. If the PCV/ST loan resolution becomes more imminent and is expected to resolve without losses, the Rating Outlooks are likely to be changed to Stable. Additional downgrades to the distressed classes (those rated below 'B') are expected as losses are realized on specially serviced loans.
Fitch downgrades the following classes:
--$42.9 million class B to 'CCsf' from 'CCCsf', RE 0%;
--$18.8 million class E to 'Csf' from 'CCsf', RE 0%;
Fitch affirms the following classes as indicated:
--$66.9 million class A-2 at 'AAAsf'; Outlook Stable;
--$58.9 million class A-2FL at 'AAAsf'; Outlook Stable;
--$60.7 million class A-3 at 'AAAsf'; Outlook Negative;
--$729 million class A-4 at 'AAAsf'; Outlook Negative;
--$319.1 million class A-1A at 'AAAsf'; Outlook Negative;
--$214.6 million class AM at 'BBsf'; Outlook Negative;
--$107.4 million class AJ at 'CCCsf', RE 10%;
--$75 million class AJ-FL at 'CCCsf', RE 10%;
--$16.1 million class C at 'CCsf', RE 0%;
--$34.9 million class D at 'CCsf', RE 0%;
--$24.1 million class F at 'Csf', RE 0%;
--$24.1 million class G at 'Csf', RE 0%;
--$26.8 million class H at 'Csf', RE 0%;
--$5.4 million class J at 'Csf', RE 0%;
--$5.4 million class K at 'Csf', RE 0%;
--$5.4 million class L at 'Csf', RE 0%;
--$2.8 million class M at 'Dsf', RE 0%.
Classes N and P have been reduced to zero due to realized losses and are affirmed at 'Dsf', RE 0%. Class A-1 has paid in full. Fitch does not rate the class Q certificates. Fitch previously withdrew the rating on the interest-only class X certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:
Structured Finance then CMBS then Criteria Reports
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria