Fitch Upgrades 2 Classes of GE 2004-C2

NEW YORK--()--Fitch Ratings has upgraded two classes of GE Commercial Mortgage Corporation series 2004-C2 commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrades are largely due to paydown and defeasance. Recent payoffs have resulted in a higher percentage of overall pool defeasance. Additionally, two previous specially serviced loans have liquidated with better than expected recoveries and a loan backed by a single-tenant asset has paid in full. At the last rating action, the single-tenant asset presented binary risk, as the maturity and lease expiration were pending in 2015. Classes J and K have since paid in full and defeasance now covers class L.

Fitch modeled losses of 30.4% of the remaining pool; expected losses on the original pool balance total 0.8%, including $1.7 million (0.1% of the original pool balance) in realized losses to date. Six loans remain in the pool, including two defeased loans (6.5% of the pool) and two specially serviced loans (22.5% of the pool).

As of the November 2015 distribution date, the pool's aggregate principal balance has been reduced by 97.6% to $32.6 million from $1.4 billion at issuance. Interest shortfalls are currently affecting class P.

Continental Centre is the largest loan in the pool (53.6% A-note/17.3% B-note) and is secured by a 477,259 square foot (sf) office building located in downtown Columbus, OH. The loan had previously transferred to special servicing in December 2012, for imminent default. Leading up to the transfer the largest tenant SBC/AT&T (currently 33.6% net rentable area [NRA], expiration December 2017) had reduced their space which affected the overall performance of the property. Since then a loan modification closed in March 2014 and the loan returned to the master servicer in September 2014. The terms of the loan modification included an A/B note split: $17.5 million A-note and $5.6 million B-note, a maturity extension to March 2019 and a rate reduction. Occupancy was 81% as of year-end (YE) 2014 and the September 2015 rent roll. Due primarily to the loan modification, the net operating income debt service coverage ratio (NOI DSCR) has increased substantially to 2.77x and 2.81x as of YE 2014 and year-to-date (YTD) second quarter 2015 (2Q15), respectively, compared to 0.94x as of YE 2013.

The next largest contributor to expected losses is a 72-unit age-restricted (65+) apartment complex located in St. Louis, MO (13.3% of pool). The loan was transferred to the special servicer in January 2013 for imminent default. A foreclosure sale closed in August 2013 and the subject is real estate owned (REO). The property was listed for sale earlier this year and a sales contract was recently in process; however, the sale fell through and the asset manager is now re-evaluating the disposition strategy. Occupancy was 79% as of September 2015. NOI DSCR was 1.02x as of YTD 2Q15 compared to 0.44x and 0.48x as of YE 2014 and YE 2013, respectively.

RATING SENSITIVITIES

The ratings of classes L and M are expected to remain stable. An upgrade to class M above the recommended rating is not warranted at this time due to pool concentration. In addition, the outcome on the two remaining specially serviced loans (22.5% of the pool) is uncertain and the modified Continental Centre A/B-notes (70.9% of the pool) are the only non-defeased notes with the master servicer. Class M may be subject to downgrades should losses increase above expectations.

DUE DILIGENCE USAGE

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

Fitch has upgraded the following ratings:

--$1.7 million class L to 'AAAsf' from 'Bsf', Stable Outlook;

--$5.2 million class M to 'BBsf' from 'CCCsf', Stable Outlook assigned.

The class A-1, A-2, A-3, A-4, A-1A, B, C, D, E, F, G, H, J, K, PPL-1, PPL-2, PPL-3, PPL-4, PPL-5 and PPL-6 certificates have paid in full. Fitch does not rate the class N, O and P certificates. Fitch previously withdrew the rating on the interest-only class X-1 certificates and the interest-only class X-2 certificates have paid in full.

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. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993938

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993938

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com