CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded one and affirmed 13 classes of Merrill Lynch Mortgage Trust (MLMT 2006-C1) commercial mortgage pass-through certificates series 2006-C1. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrade is due to high loss expectations for the remaining loans in the pool. The affirmation of class A-J reflects the concentrated nature of the pool coupled with adverse selection. The pool has 17 assets remaining, 12 of which are in special servicing (46.8%). Seven assets in special servicing are in foreclosure (16.7%). Fitch modeled losses of 18.5% of the remaining pool; expected losses on the original pool balance total 10.0%, including $202.2 million (8.1% of the original pool balance) in realized losses to date.
As of the July 2016 distribution date, the pool's aggregate principal balance has been reduced by 90.1% to $247.1 million from $2.49 billion at issuance. Interest shortfalls are currently affecting classes B and C.
The largest contributor to expected losses is a loan secured by a 409,920 square foot (sf) office building (18.7%) located in the central business district of St. Louis, MO. The loan transferred to special servicing in May 2016 due to maturity default. The largest tenant in the building, Peabody Energy (54%), filed for Chapter 11 bankruptcy in April 2016. In addition to the uncertainty related to the largest tenant, the downtown submarket of St. Louis is facing high vacancy. As of the second quarter, Reis' reported a vacancy rate of 20%, which is expected to increase with AT&T vacating the nearby One AT&T Center. The servicer is in discussion with the borrower while dual tracking foreclosure.
The second largest contributor to expected losses is a loan secured by a 192-unit multifamily property (3.9%) located in Sierra Vista, AZ. The loan transferred to special servicing in April 2016 due to maturity default. The subject is in a tertiary market, and is 80 minutes from Tucson and less than 30 minutes from the Mexican border. Several multifamily properties are located in close proximity to the subject in addition to several parcels of vacant land. As of October 2015, occupancy was 78% with NOI DSCR of 0.98x. The loan matured in April 2016 and the servicer is in discussion with the sponsor on various resolution alternatives.
The largest loan in the pool is the Mall of Louisiana (40.3%), which is a regional enclosed mall in Baton Rouge, LA. The collateral includes 641,150 sf of a 1.4 million sf mall with non-collateral anchors: Dillard's, Macy's, JCPenney, and Sears. As of YE 2015, occupancy was 98% with NOI DSCR of 3.18x. The revenue from the lifestyle component expansion, which was under construction at issuance, was not included at underwriting, but has substantially increased in-place revenue. The loan has a maturity in October 2017.
The distressed classes (those rated below 'B') may be subject to further downgrades as additional losses are realized. Upgrades are not likely as the remaining pool is adversely selected and has high concentration of assets in special servicing; however, future upgrades may be possible with greater clarity surrounding the resolution of the Gateway One asset.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has downgraded the following class:
--$56 million class B to 'Csf' from 'CCsf'; RE 0%.
Fitch has affirmed the following classes:
--$169.2 million class A-J at 'CCCsf'; RE 100%;
--$22 million class C at 'Dsf'; RE 0%.
--$0 class class D at 'Dsf'; RE 0%;
--$0 class class E at 'Dsf'; RE 0%;
--$0 class class F at 'Dsf'; RE 0%;
--$0 class class G at 'Dsf'; RE 0%;
--$0 class class H at 'Dsf'; RE 0%;
--$0 class class J at 'Dsf'; RE 0%;
--$0 class 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%.
The class A-1, A-2, A-3, A-3B, A-SB, A-4, A-1A and A-M certificates have 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 is available at www.fitchratings.com.
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Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
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Dodd-Frank Rating Information Disclosure Form