Fitch Affirms MSC 2007-IQ13; Revises Outlook to Negative on One Class

CHENNAI, India & SINGAPORE--(BUSINESS WIRE)-- Fitch Ratings has affirmed 17 classes of Morgan Stanley Capital I Trust (MSC 2007-IQ13) commercial mortgage pass-through certificates series 2007-IQ13. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations reflect sufficient credit enhancement relative to Fitch-modeled loss expectations for the pool. Fitch modeled losses of 15% of the remaining pool; expected losses on the original pool balance total 14.4%, including $60.3 million (3.7% of the original pool balance) in realized losses to date. Fitch has designated 30 loans (35.6%) as Fitch Loans of Concern, which includes 10 specially serviced assets (12.1%).

As of the June 2015 distribution date, the pool's aggregate principal balance has been reduced by 28.4% to $1.17 billion from $1.64 billion at issuance. Per the servicer reporting, seven loans (7.6% of the pool) are defeased. Interest shortfalls are currently affecting classes B through P.

The largest contributor to expected losses is a 1.2 million-sf, outlet mall (6.6%) in Hazelwood, MO, a suburb of St. Louis. The asset became REO in August 2012 through a deed-in-lieu. Performance of the mall continues to deteriorate due to increased competition from two new outlet malls in nearby Chesterfield, MO. As of YE 2014, occupancy declined to 72% from 86% at YE 2013 and is expected to drop further. In-line tenant retention remains a significant challenge as the servicer continues to evaluate disposition options.

The next largest contributor to expected losses is the 75-101 Federal Street loan (17.9% of the pool), which is secured by two interconnected, class A office buildings comprising 811,687 square feet (sf) in Boston's financial district. As of March 2015, occupancy for the building was 77% with DSCR of 0.77x. Occupancy for the property has steadily declined since issuance and NOI remains 37% below NOI underwritten at issuance. Although losses were modeled for the loan, refinance and default risk is mitigated by experienced sponsorship, strong loan structural features and a central CBD location. According to Reis' first quarter 2015 report, the Central Business District submarket of Boston had a vacancy rate of 9.5% with asking rents of $55.40 psf. The subject property underperforms the submarket with respect to occupancy and average in-place rents.

The third largest contributor to expected losses is a loan in special servicing (1.7%), secured by a 119,898 sf retail property located in Ontario, CA. The loan transferred to special servicing in July 2010 for non-monetary default due to a change in property management and transfer of ownership without lender consent. The loan was scheduled for a foreclosure sale when the borrower filed for bankruptcy protection in July 2013. As of YE 2014, occupancy for the property was 88%. The servicer is in discussion with the borrower on an agreement which may result in a payoff of the loan.

RATING SENSITIVITIES

Rating Outlooks on classes A-1A through A-4 remain Stable due to increasing credit enhancement and continued paydown of the classes. The Negative Outlook on class A-M reflects the uncertainty related to the resolution of the REO asset, St. Louis Mills, and the potential for downgrade should performance of the pool deteriorate. The distressed classes (those rated below 'B-sf') are subject to further downgrades as 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 and revises the Rating Outlook as indicated:

--$260.1 million class A-1A at 'AAAsf'; Outlook Stable;

--$34.2 million class A-3 at 'AAAsf'; Outlook Stable;

--$448.8 million class A-4 at 'AAAsf'; Outlook Stable;

--$163.9 million class A-M at 'AAsf'; Outlook to Negative from Stable;

--$149.6 million class A-J at 'CCCsf'; RE 65%;

--$32.8 million class B at 'CCCsf'; RE 0%;

--$16.4 million class C at 'CCsf'; RE 0%;

--$16.4 million class D at 'Csf'; RE 0%;

--$14.3 million class E at 'Csf'; RE 0%;

--$18.4 million class F at 'Csf'; RE 0%;

--$14.3 million class G at 'Csf'; RE 0%;

--$5.3 million 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%.

Fitch does not rate the class O and P certificates. Classes A-1 and A-2 have paid in full. Fitch previously withdrew the ratings on the interest-only class X and X-Y certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987611

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987611

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150708006240/en/

Fitch Ratings
Primary Analyst
David Ro
Director
+1-312-368-3132
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
R. Brook Sutherland
Senior Director
+1-312-606-2346
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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