Fitch Downgrades 3 Distressed Classes of MLMT 2007-C1

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded three and affirmed 18 classes of Merrill Lynch Mortgage Trust commercial mortgage pass-through certificates, series 2007-C1 (MLMT 2007-C1). 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. The downgrades to the already distressed classes are due to a greater certainty of losses as the transaction collateral nears its 10 year balloon maturity. Fitch modeled losses of 23.4% of the remaining pool; expected losses on the original pool balance total 21.8%, including $328.1 million (8.1% of the original pool balance) in realized losses to date. Fitch has designated 68 loans (51.5%) as Fitch Loans of Concern, which includes six specially serviced assets (5.2%).

The largest two contributors to expected losses are the Empirian Portfolio Pool 1 (12.4% of the pool) and Pool 3 (10.5%) loans. Both loans were transferred to the special servicer in November 2010 and returned to the master servicer in February 2013 after being modified. The modifications consisted of bifurcating both loans into an A and a B note with a 70/30 split. Pool 1 was originally secured by 78 multifamily properties (7,964 units) located across eight states. Pool 3 was originally secured by 79 multifamily properties (6,864 units) located across eight states. The borrower is permitted to release a limited amount of properties from the portfolio prior to full payoff of the loans. Pool 1 has released 37 properties while Pool 3 has released 36 properties to date. The properties within the two portfolios are generally of class B and C collateral quality, many of which were constructed in the 1980s and lack common amenities. Most of the properties have significant deferred maintenance and only a small amount of the required repair obligations have been completed on the remaining portfolio. As of March 2015, the occupancy for Pool 1 and Pool 3 were approximately 91% and 93%, representing an increase from the 87% and 89% reported at year-end 2013. The year-end 2014 net operating income (NOI) debt service coverage ratio (DSCR) for Pool 1 is 1.24x and Pool 3 is 1.0x.

The next largest contributor to expected losses is the DRA/Colonial Office Portfolio loan (7.6% of the pool). The interest-only loan is secured by 16 office and retail buildings that comprise approximately 4.4 million square feet (sf) and are located across five metropolitan statistical areas (MSAs), primarily in the south and southeast. The loan has a total balance of $536.7 million and is split into three equal pari passu notes. The loan transferred to special servicing in August 2012 for imminent default due to declining occupancy with significant rollover. The loan was returned to the master servicer in May 2013 after receiving a modification which included an increased interest-only period for 24 months with a new maturity of July 2016. The borrower is also permitted to release properties from this portfolio and six properties have been released so far. The servicer-reported NOI DSCR was 1.22x as of year-end 2014 up from 1.18x at year-end 2013, and the occupancy was 84% as of year-end 2014.

RATING SENSITIVITIES

Rating Outlooks on classes A-3, A-3FL, and A-SB are revised to Stable due to the bonds receiving significant principal paydown, resulting in an increase in credit enhancement. Classes A-4 and A-1A remain Negative as downgrades are possible if losses to the Empirian Portfolios or other large assets in pool increase. Fitch will continue to monitor property releases from the Empirian Portfolios and DRA Colonial Office Portfolio, paying attention to the remaining collateral to ensure the asset quality and performance reflects Fitch's views from the current review. The distressed classes (those rated below 'B') are expected to be subject to further downgrades as losses are realized on specially serviced loans.

DUE DILIGENCE USAGE

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

Fitch downgrades the following classes as indicated:

--$134.1 million class AJ to 'Csf' from 'CCsf'; RE 0%;

--$85 million class AJ-FL to 'Csf' from 'CCsf'; RE 0%;

--$34.3 million class C to 'Dsf' from 'Csf'; RE 0%.

Fitch affirms the following classes and revises Rating Outlooks indicated:

--$63.3 million class A-3 at 'Asf'; Outlook to Stable from Negative;

--$25.6 million class A-3FL at 'Asf'; Outlook to Stable from Negative;

--$38.2 million class A-SB at 'Asf'; Outlook to Stable from Negative;

--$442.2 million class A-4 at 'Asf'; Outlook Negative;

--$939.3 million class A-1A at 'Asf'; Outlook Negative;

--$405 million class AM at 'CCCsf'; RE 50%;

--$86.1 million class B at 'Csf'; RE 0%;

--$0 class D at 'Dsf'; RE 0%;

--$0 class E at 'Dsf'; RE 0%;

--$0 class F at 'Dsf'; RE 0%;

--$0 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%;

--$0 class N at 'Dsf'; RE 0%;

--$0 class P at 'Dsf'; RE 0%.

The class A-1, A-2 and A-2FL certificates have paid in full. Fitch does not rate the class Q and AJ-FX certificates. Fitch previously withdrew the rating on the interest-only class X 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=987606

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987606

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/20150708006160/en/

Fitch Ratings
Primary Analyst
Darren Liss
Director
+1-212-908-0753
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Chris Bushart
Senior Director
+1-212-908-0606
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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