Fitch Affirms J.P. Morgan 2006-LDP7
KEY RATING DRIVERS
Fitch modeled losses of 12.1% of the remaining pool; expected losses on the original pool balance total 10.7%, including \\$137.9 million (3.5% of the original pool balance) in realized losses to date. Fitch has designated 44 loans (25%) as Fitch Loans of Concern, which includes 21 specially serviced assets (17%).
As of the September 2015 distribution date, the pool's aggregate principal balance has been reduced by 40% to \\$2.36 billion from \\$3.94 billion at issuance. Per the servicer reporting, 30 loans (16.1% of the pool) are defeased. Interest shortfalls are currently affecting classes G through NR.
The largest contributor to expected losses is the specially-serviced Westfield Centro Retail Portfolio loan (10.2% of the pool), which is secured by a portfolio of four regional malls and one anchored retail center totaling 2.4 million square feet (sf) (1.7 million sf on which is collateral) located in OH, CT, MO, CA, and CO. The retail centers are all managed by Madison Marquette. The loan transferred to special servicing in May 2014 for imminent default as the sponsor was unable to continue to fund property operating shortfalls or leasing cost obligations. The decline in performance is mostly attributed to Midway Mall's (Elryia, OH) underperformance. The space vacated by Dillards (157,580 sf) remains vacant since August 2007. The property is currently anchored by Best Buy (41,479 sf) and JCPenney (159,334 sf) both with lease expirations in 2016. The property is 64% occupied. The remaining properties, Westland Town Center, Enfield Mall, and Eagle Rock continue to have occupancies in the mid 90's, and West Park is 89% occupied. Overall, the portfolio is 85% occupied as of July 2015. The year-end (YE) 2014 debt-service coverage ratio (DSCR) for the portfolio is 1.29x.
The loan matures on July 1, 2016. Per the special servicer, the borrower is remitting partial cash flow payments. The borrower initially requested an A/B note modification due to decreased cash flow from the properties resulting in values below the loan's principal balance. The borrower has also offered a deed-in-lieu of foreclosure for CA, CO, OH, MO and stipulated foreclosure in CT, pending updated environmental reports. Negotiations between the special servicer and borrower continue to be dual-tracked with the foreclosure action and/or deed in lieu of foreclosure until a resolution is achieved. A deed in lieu and/or foreclosure are anticipated in October/November 2015.
The next largest contributor to expected losses is the Centre at Salisbury loan (4.9%), which is secured by an 861,702 sf regional mall located in Salisbury, MD. The mall is anchored by Boscov's, Sears, and Macy's. JCPenney's closed in May 2014. Major tenants include Dick's Sporting Goods and Regal Cinemas. Per the June 2015 rent roll, the property was 87% occupied. Despite the historically stable occupancy, the net operating income (NOI) has decreased 20% overall since issuance and 10% from year-end (YE) 2014. The trailing 12 month (TTM) December 2014 in-line sales were \\$289 up from \\$219 per square foot (psf) as of June 2013 but down from \\$350 sf at issuance and anchor sales were \\$121 up from \\$116 psf. There is approximately 4% upcoming rollover in 2015 and 34% in 2016. The loan matures in May 2016.
The third largest contributor to expected losses is the specially-serviced Linden Plaza loan (1.4%), which is secured by a 277,717 sf retail property located in Linden, NJ. Leases at the property include Wal-Mart (41%), Dollar Tree (6%), and Modell's (5%). There is approximately 7% upcoming rollover in 2016. As of July 2015, the property is 72.46% occupied. The loan was transferred to the special servicer in April 2014 for imminent default. The loan was modified on Aug. 19, 2015. Modification terms include an A/B note split providing for an A note of \\$19 million, interest-only, at the contract rate of 6.09%; a B note of \\$13.6 million, accruing at the contract rate of 6.09%; and an extension of the maturity date to May 1, 2019.
RATING SENSITIVITIES
Rating Outlooks on classes A-4 and A-1A remain Stable due to increasing credit enhancement and continued paydown. The Rating Outlook on class A-M remains Negative due to the large number of specially serviced assets and the potential for increased fees and expenses associated with those assets the longer they remain in special servicing.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch affirmed the following ratings:
--\\$1.1 billion class A-4 at 'AAAsf'; Outlook Stable;
--\\$293.1 million class A-1A at 'AAAsf'; Outlook Stable;
--\\$394 million class A-M at 'AAAsf'; Outlook Negative;
--\\$310.3 million class A-J at 'CCCsf'; RE 85%;
--\\$78.8 million class B at 'CCsf'; RE 0%;
--\\$44.3 million class C at 'CCsf'; RE 0%;
--\\$14.8 million class D at 'Csf'; RE 0%;
--\\$39.4 million class E at 'Csf'; RE 0%;
--\\$39.4 million class F at 'Csf'; RE 0%;
--\\$2.1 million class G at 'Dsf'; RE 0%;
--\\$0 class H at 'Dsf'; RE 0%;
--\\$0 class J at 'Dsf'; RE 0%;
--\\$0 class K at 'Dsf'; RE 0%;
--\\$0 class L at 'Dsf'; RE 0%;
--\\$0 class M at 'Dsf'; RE 0%.
The class A-1, A-2, A-3A, A-3FL, A-3B and A-SB certificates have paid in full. Fitch does not rate the class N, P, Q and NR certificates. Fitch previously withdrew the rating on the interest-only class X certificates.
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