Fitch Upgrades Class A-M of BACM 2007-4
KEY RATING DRIVERS
The upgrade reflects an increase in credit enhancement due to principal paydown and lower than expected losses on disposed loans since the last rating action. Fitch modeled losses of 10.7% of the original pool (including losses of 5.1% incurred to date). Fitch has identified 18 loans (24%) as Fitch Loans of Concern, which includes four specially serviced loans (1.5%).
As of the September 2015 distribution date, the pool's aggregate principal balance has been reduced by 41.8% to \\$1.3 billion, down from \\$2.2 billion at issuance. There are four defeased loans (2.4%). Cumulative interest shortfalls in the amount of \\$5.9 million are currently affecting classes J through S.
The largest contributor to modeled losses is a partial interest-only loan (8.2%) secured by a 231,512 square foot (sf) office property located in La Jolla, CA. The property was not stabilized at the time of origination. The issuer-underwritten rental rates were generally based upon stabilized rents and not in-place rents. Occupancy improved to 98.4% at third-quarter 2014 (3Q14) from 98% at YE2013 and 82.7% at issuance, However, operating income has not reached expectations from issuance. The servicer-reported 3Q14 debt service coverage ratio (DSCR) remains low at 0.49x, compared to 0.35x at YE2013 and 1.29x at issuance. According to REIS, as of 2Q15, the La Jolla submarket of San Diego had a vacancy rate of 11.8% with asking rents of \\$37.47 per square foot (psf). The average in-place rents at the property are below market at around \\$28.95 psf. Although the property is underperforming, the loan remains current. The borrower continues to cover debt service shortfalls with out-of-pocket funds.
The second largest contributor to losses is an interest-only loan (5%) secured by a 256,670 sf office property located in Scottsdale, AZ. As of June 2015, property occupancy was 95.9%, compared to 98% at YE2014 and 93.8% at issuance. Servicer-reported 1Q15 DSCR was 1.28x, compared to 1.17x at YE2014 and 1.50x at issuance. Approximately 64% of the total property square footage rolls prior to the loan's maturity date of July 2017.
The third largest contributor to losses is an interest-only loan (1.5%) secured by a 248,900 sf industrial property located in Phoenix, AZ. The property had been vacant since February 2012 after the former single tenant vacated upon lease expiration. In 2014, a new tenant signed a 10-year lease to occupy the entire property, effective October 2014. The servicer reported 2Q15 DSCR was 0.90x, compared to -0.33x at YE2014 and 1.16x at issuance.
RATING SENSITIVITIES
Fitch applied additional sensitivity stresses for the rating upgrade, including taking a higher modeled probability of default and increased haircuts to the pool as a whole. Ratings on classes A4 through A-J are expected to remain stable due to sufficient credit enhancement. Downgrades to the distressed classes (those rated below 'B') are expected as losses are realized on specially serviced loans.
Fitch has upgraded the following class:
--\\$223.1 million class A-M to 'AAAsf' from 'AAsf'; Outlook Stable.
Fitch has downgraded the following class:
--\\$27.9 million class H to 'Csf' from 'CCsf'; RE 0%.
Fitch has upgraded the following classes:
--\\$569 million class A-4 at 'AAAsf'; Outlook Stable;
--\\$175.2 million class A-1A at 'AAAsf'; Outlook Stable;
--\\$178.5 million class A-J at 'Bsf'; Outlook Stable;
--\\$22.3 million class B at 'CCCsf'; RE 100%;
--\\$19.5 million class C at 'CCCsf'; RE 50%;
--\\$22.3 million class D at 'CCCsf'; RE 0%;
--\\$22.3 million class E at 'CCsf'; RE 0%;
--\\$13.9 million class F at 'CCsf'; RE 0%;
--\\$16.7 million class G at 'CCsf'; RE 0%;
--\\$6 million class J at 'Dsf'; RE 0%;
--\\$0 million 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 O at 'Dsf'; RE 0%;
--\\$0 class P at 'Dsf'; RE 0%;
--\\$0 class Q at 'Dsf'; RE 0%.
Fitch does not rate class S. Class A-1, A-2, A-3, and A-SB notes are paid in full. The rating on class XW was previously withdrawn.
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