NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded one class and affirmed 16 classes of Bear Stearns Commercial Mortgage Securities Trust (BSCMS) commercial mortgage pass-through certificates, series 2007-Top26. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrade of class A-M reflects higher modeled losses on both the specially serviced loans, as well as several of the largest loans remaining in the trust. Fitch has affirmed classes A-4 and A-1A based off high credit enhancement resulting from continued paydown and the classes' position within the credit stack. Additionally Fitch has affirmed distressed classes A-J through O, as loss expectations for these classes have not improved. Fitch modeled losses of 16.64% on the remaining pool. Expected losses on the original pool balance total 16.54%, which is inclusive of $81,369,502 (3.86% of the original balance) realized to date.
As of the November 2016 distribution date, the pool's aggregate principal balance has been reduced by 47% to $1.2 billion from $2.1 billion at issuance. Per servicer reporting, 13 loans are fully defeased (11.5% of the current balance). There are five loans (2%) with the special servicer. Interest shortfalls are currently affecting classes E, F, J, K, L, N, O, and P.
Stable Performance: The pool has exhibited relatively stable performance since last Fitch's last rating action with credit enhancement levels for the top classes, A-4 and A-1A, increasing as a result of 40 loans, totalling $202,840,641, repaying in full.
High Percentage of Fitch Loans of Concern: Fitch has designated 17 loans (26.9%) as Loans of Concern, including the five loans (2%) that are currently with the special servicer.
The largest Fitch Loan of Concern is the One AT&T Center loan (10.1%), which is secured by a 1.46 million square foot (sf) office building located in St. Louis, MO. The property is fully-occupied by AT&T (rated 'A-' by Fitch) through a triple-net (NNN) lease that expires in September 2017. Starting in 2013, several news sources reported that AT&T intends to fully vacate the property upon their lease expiration in September 2017 and has begun to move workers out of the building. According to the master servicer, AT&T has not provided the borrower with any indication of whether or not they will renew their lease. The loan has an Anticipated Repayment Date (ARD) of January 2017. As of year-end 2015, the servicer reported a net operating income (NOI) debt service coverage ratio (DSCR) for the property of 2.64x. Fitch will continue to monitor the loan for leasing updates, as well as any decline in performance.
The second largest Fitch Loan of Concern is the Viad Corporate Center loan (5%), which is secured by a 474.424 sf office building located in Phoenix, AZ. Originally developed as the headquarters for Viad Corp. in 1991, the property was converted to multi-tenant use in 1998. The largest tenants at the property include Dickinson Wright PLLC, accounting for 9.6% of the net rentable area (NRA) with a lease that expires in May 2026, Cavanagh Law Firm (8% of NRA, expiry April 2026), and Stitson Morrison Hecker LLP (7% of NRA, expiry September 2023). The loan was previously modified in May 2011, which included a $9 million write-down of principal. Per the December 2015 rent roll the property was 72% occupied, and the servicer-reported NOI DSCR was 0.97x as of YE 2015. As of the third quarter of 2016, REIS reported a vacancy rate of 25.5% for the Uptown submarket of Phoenix, AZ. The borrower has not yet provided the master servicer with an update with regard to repayment. The loan matured on Dec. 1, 2016.
Refinance Risk: There are 99 loans, comprising 70% of the pool's current balance, that are scheduled to mature in the first quarter of 2017.
Secondary and Tertiary Market Risk: Out of the top 15 loans, one (2.7%) is secured by an asset located in a secondary market and eight (30.2%) are located in tertiary markets. Both the secondary and tertiary markets exhibit high vacancy rates and minimal leasing velocity.
High Percentage of Interest-Only Loans: Full term interest-only loans account for 57.8% of the pool's current balance.
Office and Retail Concentrations: Of the remaining pool, 53.2% are office loans and 24.1% are retail loans.
The Rating Outlooks on classes A-4 and A-1A remain Stable. The Rating Outlook for class A-M remains Negative as further downgrades are possible as the potential for outsized losses on the One AT&T Center loan and the Viad Corporate Center loan are possible, as their repayment is uncertain. Further downgrades to the distressed classes are likely as losses are realized. Upgrades are not likely.
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 rating:
--$210.6 million class A-M to 'Asf' from 'AAsf'; Outlook Negative.
Fitch has affirmed the following ratings:
--$582.2 million class A-4 at 'AAAsf'; Outlook Stable;
--$46.4 million class A-1A at 'AAAsf'; Outlook Stable;
--$160.5 million class A-J at 'CCCsf'; RE to 65% from 95%;
--$42.1 million class B at 'CCsf'; RE 0%;
--$18.4 million class C at 'CCsf'; RE 0%;
--$28.9 million class D at 'Csf'; RE 0%;
--$15.8 million class E at 'Csf'; RE 0%;
--$10.8 million class F at 'Dsf'; RE 0%;
--$0 million class G at 'Dsf'; RE 0%;
--$0 million class H at 'Dsf'; RE 0%;
--$0 million class J at 'Dsf'; RE 0%;
--$0 million class K at 'Dsf'; RE 0%;
--$0 million class L at 'Dsf'; RE 0%;
--$0 million class M at 'Dsf'; RE 0%;
--$0 million class N at 'Dsf'; RE 0%;
--$0 million class O at 'Dsf'; RE 0%.
The class A-1, A-2, A-3, A-AB certificates have all paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the rating on the interest-only class X-1 and X-2 certificates.
Additional information is available at www.fitchratings.com.
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Dodd-Frank Rating Information Disclosure Form
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