Fitch Downgrades One Distressed Class of MLMT 2006-C1

CHICAGO--()--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.

RATING SENSITIVITIES

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.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

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=1009907

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009907

Endorsement Policy

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
David Ro
Director
+1-312-368-3132
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
David Ro
Director
+1-312-368-3132
Fitch Ratings, Inc.
70 West Madison
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com