OREANDA-NEWS. Fitch Ratings has downgraded one distressed class and affirmed 21 classes of Banc of America Commercial Mortgage Trust, commercial mortgage pass-through certificates, series 2007-2 (BACM 2007-2). A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmation of the majority of the classes reflects the relatively stable performance of the collateral pool since Fitch's last rating action. Fitch modeled losses of 14.6% of the remaining pool; expected losses on the original pool balance total 14.5%, including $234.7 million (7.4% of the original pool balance) in realized losses to date. Fitch has designated 27 loans (31.5% of the current pool) as Fitch Loans of Concern, which includes six loans (2.3%) in special servicing. The downgrade of the already distressed class reflects realized loss as a result of the asset dispositions.

As of the December 2015 distribution date, the pool's aggregate principal balance has been reduced by 51.4% to $1.54 billion from $3.17 billion at issuance. According to servicing reports, four loans (3.5%) are defeased. Cumulative interest shortfalls totaling $26.2 million are currently affecting classes F through class S.

The two largest contributors to Fitch-modeled losses remain the same since Fitch's last rating action.

The largest contributor to Fitch-modeled losses is Connecticut Financial Center (8.5% of pool). The loan is secured by a 466,049 square foot (sf) office building located in New Haven, CT. The loan was previously transferred to special servicing in June 2012 for imminent default after the initial largest tenant, which leased nearly 47% of the total property square footage, vacated a significant block of their occupied space at its June 2012 lease expiration, causing both occupancy and cash flow to drop significantly. A modification was executed in August 2013 whereby the loan was bifurcated into a $70 million A-note and a $60.4 million B-note, the borrower contributed new equity to fund tenant improvements and pay delinquent accrued interest, and the debt service payment was reduced to be interest-only at 2% in the first year, 3% in the second year, and then the note rate until the loan's March 2017 maturity date. The loan was returned to the master servicer in January 2014 and is performing under the modified terms.

As of the June 2015 rent roll, the property was 78% occupied, compared to 74% at Fitch's last rating action as of September 2014 and 91% at issuance. The largest tenants are Yale University (14% of net rentable area [NRA], lease expiration in May 2017), General Services Administration (GSA) - US Attorneys (13%; April 2022), and United Illuminating (11%; June 2022). Near-term lease rollover consists of 2% in 2016 and 14% in 2017.

The second largest contributor to Fitch-modeled losses is the Beacon Seattle & DC Portfolio (10.7%). The loan was initially secured by a portfolio consisting of 16 office properties, the pledge of the mortgage and the borrower's ownership interest in one office property, and the pledge of cash flows from three office properties. In aggregate, the initial portfolio of 20 properties comprised approximately 9.8 million sf of office space. The loan was transferred to special servicing in April 2010 for imminent default and was modified in December 2010. Key modification terms included a five-year extension of the loan to May 2017, a deleveraging structure that provided for the release of properties over time, and an interest rate reduction. The loan was returned to the master servicer in May 2012 and is performing under the modified terms.

Since Fitch's last rating action, there were two additional collateral releases, including Plaza East (Bellevue, WA) in May 2015 and 1111 Sunset Hills Road (Reston, VA) in December 2015. The release of the Plaza East property resulted in no principal pay down to the loan piece in this transaction, while the release of the 1111 Sunset Hills Road property resulted in a $2.5 million principal paydown to the loan piece in this transaction.

The remaining collateral consists of seven properties totaling 3.7 million sf, four of which are located in the Washington DC MSA and three are located in Bellevue, WA. As of June 2015, the portfolio occupancy of the remaining seven properties was 84%, compared to 81% at year-end (YE) 2014. Annualized June 2015 net cash flow for these remaining properties was $66.2 million, compared to $63.5 million at YE 2014. GSA has renewed and extended its lease at the Polk Building to September 2025 and at the Taylor Building to April 2018, while Booz Allen Hamilton downsized to approximately 210,000 sf at the Booz Allen Complex property and extended its lease to September 2025.

The third largest contributor to Fitch-modeled losses is Fayette Pavilion III & IV (3.3%). The loan is secured by a 490,781 sf power center located in Fayetteville, GA. As of the October 2015 rent roll, the property was 83.7% leased and 81.7% occupied. Anna's Linen (2% of NRA) has a lease expiration in 2020, but the space is currently unoccupied. This compares to 84.8% occupancy one year earlier and 94% at issuance. Property net operating income remains 17.5% below issuance. The largest tenants are Kohl's (18% of NRA; lease expiration in January 2022), Belk (13%; February 2020), and Dick's Sporting Goods (9%; October 2016). Near-term lease rollover consists of 10% in 2016 and 13% in 2017.

RATING SENSITIVITIES

Rating Outlooks on the super senior 'AAA' classes remain Stable due to increasing credit enhancement and expected continued paydown.

The Outlook on class A-M was revised to Stable from Negative to reflect lower expected losses on the overall pool due to better recoveries than previously modeled on loans disposed since the last rating action. However, an upgrade was not warranted on this class due to the possibility for further underperformance on loans in the top 15 as many are highly leveraged and are secured by retail properties located in secondary markets with lease rollover risk during the loan term.

Seven of the top 15 loans (26.3%) are secured by retail properties located in various secondary and tertiary markets in Georgia (7.9%), Louisiana (8.4%), North Carolina (2.7%), Florida (3.1%); Kentucky (2.5%), and Alabama (1.8%). In addition, there is sponsor concentration within the top 15 loans with CBL & Associates Properties, Inc. (two loans; 10.8%); DDRTC Core Retail Fund (three loans; 9.7%); and Inland Retail Real Estate Trust, Inc. (two loans; 5.8%).

Distressed classes (those rated below 'Bsf') 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 has downgraded the following class:
--$27.8 million class G to 'Dsf' from 'Csf'; RE 0%.

In addition, Fitch has affirmed and revised the Rating Outlook on the following classes as indicated:

--$13.3 million class A-3 at 'AAAsf'; Outlook Stable;
--$2.1 million class A-AB at 'AAAsf'; Outlook Stable;
--$602 million class A-4 at 'AAAsf'; Outlook Stable;
--$210.2 million class A-1A at 'AAAsf'; Outlook Stable;
--$317.3 million class A-M at 'Asf'; Outlook to Stable from Negative;
--$153.8 million class A-J at 'CCCsf'; RE 70%;
--$100 million class A-JFL at 'CCCsf'; RE 70%;
--$15.9 million class B at 'CCCsf'; RE 0%;
--$47.6 million class C at 'CCsf'; RE 0%;
--$31.7 million class D at 'Csf'; RE 0%;
--$15.9 million class E at 'Csf'; RE 0%;
--$27.8 million class F at 'Csf'; 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%;
--$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%.

The class A-1, A-2, and A-2FL certificates have paid in full. Fitch does not rate the class S certificates. Fitch previously withdrew the rating on the interest-only class XW certificates.