OREANDA-NEWS. Fitch Ratings has downgraded four and affirmed five classes of Wachovia Bank Commercial Mortgage Trust, commercial mortgage pass-through certificates, series 2004-C12 (WBCMT 2004-C12). A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The downgrades reflect an increase in Fitch-modeled losses since Fitch's last rating action, primarily from the two largest loans in the pool, both of which are retail properties. The affirmation of the remaining classes reflects concerns of pool concentration and adverse selection, despite the increased credit enhancement since the last rating action, as many of the remaining properties are in the retail sector, in special servicing, and/or located in secondary or tertiary markets.

Fitch modeled losses of 27.7% of the remaining pool; expected losses on the original pool balance total 2.5%, including $9.7 million (0.9% of the original pool balance) in realized losses to date. Fitch has designated six loans (69.6%) as Fitch Loans of Concern, which includes three specially serviced assets (61.5%).

As of the February 2016 distribution date, the pool's aggregate principal balance has been reduced by 94.2% to $61.9 million from $1.06 billion at issuance. Of the 97 loans in the original pool, only 14 loans currently remaining, of which 98% by balance are secured by retail loans. Of this retail component, 15% is single-tenant exposure to either Walgreen's or Walmart. Per the servicing report, one loan (3.3%) is defeased. The loan maturity schedule consists of 21.7% of the pool maturing in 2019 and 16.8% in 2024. Interest shortfalls are currently affecting class P.

The largest contributor to Fitch-modeled losses is The Mall at Waycross asset (14.6% of pool). The asset is a 380,982 square foot (sf) retail property located in Waycross, GA. The loan was transferred to special servicing in January 2014 for imminent default. At that time, the borrower had sent a hardship letter indicating an inability to refinance the loan by the May 2014 maturity date due to property level issues. The foreclosure sale was completed in August 2014.

As of the January 2016 rent roll, the property was 68% occupied. An additional 22.6% remains dark due to Sear's closing its store in February 2010, while its lease runs out to March 2020. Physical property occupancy has remained in the mid-high 60% range since 2010. Since Fitch's last rating action, both of the anchor tenants, JCPenney (21.2% of net rentable area [NRA]) and Belk (16.1%), as well as many other in-line tenants, have extended their leases. JCPenney extended its lease to August 2022 from August 2016. Belk extended to August 2021 from August 2016. Staples (6.3%) extended to February 2020 from February 2015. Hibbett Sporting Goods (2.1%) extended to January 2021 from January 2016. The Georgia Theatre's lease (4.9%) has an upcoming expiration in August 2016; however, the servicer indicated negotiations for renewal are ongoing. Three new leases were also executed in 2015 totaling 3.6% of the NRA. Lease rollover risk over the next few years is relatively limited with 5.6% of the NRA in 2016, 1.6% in 2017, and 2.6% in 2018.

According to the most recent sales report provided by the servicer, in 2015, in-line sales for tenants with a full 12 months of reported sales averaged approximately $107 per square foot (psf). JCPenney reported sales of $76 psf in 2015, which has been declining year-over-year since 2007 when sales were $132 psf. Belk reported sales of $125 psf for 2014, which has gradually increased year-over-year since 2009 when sales were $107 psf. According to the special servicer, the property was fully marketed and all offers are currently being evaluated at this time. Near-term disposition appears likely.

The next largest contributor to Fitch-modeled losses is the Eastdale Mall loan (41.9%). The loan is secured by 481,422 sf of a 757,411 sf regional mall located in Montgomery, AL. The current loan sponsor is the Aronov Company.

The loan was first transferred to special servicing in November 2013 for imminent default. In December 2013, the loan was modified, whereby the modification eliminated the loan's anticipated repayment date (ARD) provisions (original ARD was June 11, 2014) and brought up the final loan maturity to December 2018 from December 2027. The loan returned to the master servicer in June 2014.

The loan was transferred back to the special servicer for a second time in September 2015 as the borrower is requesting the loan be modified again as part of a potential sale of the property to a proposed new buyer that wants a principal reduction on the debt. The sale of the property is still pending and the property has not yet been put under contract. The special servicer indicated that if no new agreement is reached with the proposed new buyer, the loan would be returned to the master servicer. The loan remains current and performing.

As of the December 2015 rent roll, the overall mall occupancy was 92.1% and the collateral occupancy was 87.6%. Occupancy had declined in 2013 when the Eastdale Cinemas (6% of collateral NRA) vacated in March 2013 after operating on a month-to-month lease. Non-collateral anchors include Dillard's (177,427 sf) and JCPenney (98,542 sf). Collateral anchors include Sears (18.3% of collateral NRA) and Belk (16.3%). The borrower had executed lease extensions with Sears to February 2017 from September 2014 and with Belk to January 2018 from January 2015. The borrower invested $500,000 for the Sears extension and $1.5 million for the Belk extension.

Lease rollover is concentrated in 2017 and 2018 with 36.5% and 33.5% of the collateral NRA expiring during these years. In addition, both of the collateral anchors have been experiencing declining sales. According to the most recent sales report provided by the servicer, in 2015, Sears and Belk reported sales of $56 psf and $124 psf, respectively, declining from $83 psf and $135 psf, respectively, in 2012. In-line sales for tenants with a full 12 months of reported sales averaged approximately $270 psf.

RATING SENSITIVITIES

The Rating Outlook on classes F through H is Stable due to sufficient credit enhancement and expected continued paydown. Upgrades were not considered due to pool concentration and adverse selection, as well as limited upcoming loan maturities. The Rating Outlook on classes J and K were revised to Negative from Stable due to an increase in the overall pool expected loss since the last rating, due to the thin nature of these tranches, and due to the large concentration of the specially serviced assets, primarily the two largest retail loans, which has underperformed and/or located in secondary/tertiary markets. The distressed classes (those rated below 'Bsf', as well as those classes with Negative Outlooks, may be subject to further downgrades if the performance of the two retail properties decline, if additional losses are realized, or if losses exceed Fitch's expectation.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has downgraded the following classes as indicated:

--$5.3 million class L to 'CCCsf' from 'Bsf; RE 85%;
--$4 million class M to 'CCsf' from 'B-sf'; RE 0%;
--$2.7 million class N to 'CCsf' from 'CCCsf'; RE 0%;
--$2.7 million class O to 'Csf' from 'CCCsf' RE 0%.

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

--$9.1 million class F at 'Asf'; Outlook Stable;
--$12 million class G at 'Asf'; Outlook Stable;
--$13.3 million class H at 'BBB-sf'; Outlook Stable;
--$4 million class J at 'BBsf'; Outlook to Negative from Stable;
--$2.7 million class K at 'BBsf'; Outlook to Negative from Stable.

Classes A-1, A-1A, A-2, A-3, A-4, B, C, D, E, and MAD have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the rating on the interest-only class IO certificates.