Fitch Affirms MLMT 2006-C1
KEY RATING DRIVERS
The affirmations reflect sufficient credit enhancement relative to Fitch expected losses. Fitch modeled losses of 13.3% of the remaining pool; expected losses on the original pool balance total 11.4%, including \\$55.3 million (2.2% of the original pool balance) in realized losses to date. Fitch has designated 66 loans (29.4%) as Fitch Loans of Concern, which includes 21 specially serviced assets (15.4%).
As of the August 2015 distribution date, the pool's aggregate principal balance has been reduced by 30.8% to \\$1.72 billion from \\$2.49 billion at issuance. Per the servicer reporting, 20 loans (7.3% of the pool) are defeased. Interest shortfalls are currently affecting classes B through L.
Of the loans in special servicing, 18 assets (14.8% of pool balance) are real-estate owned (REO), two assets (0.6%) are in foreclosure and one loan (0.1%) is in its grace period.
Approximately \\$1.5 billion of loans (88% of the pool) have scheduled maturities in 2016. Over half of the loans in the pool (52%) mature in the 1st quarter followed by 36% in the 2nd quarter of 2016.
The largest contributor to expected losses (5.2%) is a 326,535 sf REO asset consisting of two office buildings in Cerritos, CA. The loan transferred to special servicing in June 2013 for imminent default and became REO in February 2014. As of June 2015, the property is 76% occupied by two tenants, AT&T (52%) and Caremore Health (24%). The property was originally a build-to-suit for AT&T; however, AT&T downsized and subleased a portion of the space. The sublease was with Caremore Health until a direct lease was signed in 2014. According to Reis, the East County office submarket of Los Angeles had a vacancy rate of 12.8% with average asking rents of \\$27.50 psf. The servicer anticipates a disposition of the property by year end.
The next largest contributor to expected losses (3.2% of pool balance) is a 298,865 square foot (sf) REO asset consisting of two three-story office buildings located in Scottsdale, AZ. The asset transferred to special servicing in October 2009 when the largest tenant (50% of the total net rentable area [NRA]) exercised its early termination option and vacated. As of July 2015, occupancy was 85%. The largest tenant at the property is Vanguard Group (49%) which commenced rent payment in December 2013. According to Reis, the Scottsdale office submarket of Phoenix continues to have a high vacancy rate of 24.7% with average asking rents of \\$26.12 per square foot (psf). The subject underperforms the market with respect to average in-place rents. The servicer anticipates a disposition of the property by year end.
The third largest contributor to expected losses (1.3%) is a 356,061 sf office building located in downtown Cincinnati, OH. The loan transferred to special servicing in June 2008 for imminent default and became REO in March 2010. As of August 2015, occupancy for the building declined to 52% from 67% in 2014 with the second largest tenant in the building (11% of NRA) vacating at lease expiration in early 2015. Approximately 10% of the NRA expires in the next two years. According to Reis, the CBD office submarket of Cincinnati had a vacancy rate of 18.1% with average asking rents of \\$19.45 psf compared to \\$16.40 psf for the subject property.
RATING SENSITIVITIES
Rating Outlooks on the 'AAA' rated classes remain Stable due to increasing credit enhancement and continued paydown of the classes. Fitch performed additional stresses when considering the Outlook for class A-M and expects the class to remain stable due to sufficient credit enhancement. Upgrades were limited based on the high concentration of REO assets and the lack of progress in liquidation. The weighted-average aging of the REO assets is 3.1 years. Distressed classes (those rated below 'B') may be subject to further downgrades as additional losses are realized.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch affirms the following classes as indicated:
--\\$69.1 million class A-3 at 'AAAsf'; Outlook Stable;
--\\$25 million class A-3B at 'AAAsf'; Outlook Stable;
--\\$753.4 million class A-4 at 'AAAsf'; Outlook Stable;
--\\$176.3 million class A-1A at 'AAAsf'; Outlook Stable;
--\\$249 million class A-M at 'AAsf'; Outlook Stable;
--\\$217.9 million class A-J at 'CCCsf'; RE 90%;
--\\$56 million class B at 'CCsf'; RE 0%;
--\\$28 million class C at 'Csf'; RE 0%;
--\\$31.1 million class D at 'Csf'; RE 0%;
--\\$18.7 million class E at 'Csf'; RE 0%;
--\\$28 million class F at 'Csf'; RE 0%;
--\\$21.8 million class G at 'Csf'; RE 0%;
--\\$24.9 million class H at 'Csf'; RE 0%;
--\\$6.2 million class J at 'Csf'; RE 0%;
--\\$9.3 million class K at 'Csf'; RE 0%;
--\\$735,057 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 and A-SB 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.
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