Fitch Downgrades Four Distressed Classes of MLCFC 2007-9

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded four and affirmed 13 classes of ML-CFC Commercial Mortgage Trust, commercial mortgage pass-through certificates, series 2007-9 (MLCFC 2007-9). A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The downgrades reflect higher loss expectations, primarily from loans in special servicing, as well as the erosion of credit enhancement from loan dispositions since Fitch's last rating action. The affirmation of the remaining classes reflects sufficient credit enhancement relative to pool expected losses.

As of the October 2016 distribution date, the pool's aggregate principal balance has been reduced by 50% to $1.4 billion from $2.8 billion at issuance. According to servicer reporting, 19 loans (16%) are defeased, an increase from 11 loans at the last rating action. Cumulative interest shortfalls totaling $24.6 million are currently affecting classes AJ, AJ-A, B through F and J through T.

Higher Modeled Losses since Last Rating Action: Fitch modeled losses of 15.6% of the remaining pool; expected losses on the original pool balance total 16%, including $231 million (7.8% of original pool balance) in realized losses to date. This compares to expected losses of 14.6% of the original pool balance at Fitch's last rating action.

Loans of Concern: Fitch has designated 72 loans (50.3% of current pool balance) as Fitch Loans of Concern, which includes 11 specially serviced assets (16.1%). Four of the top 15 loans (11.2%) are currently in special servicing. The specially serviced assets include six that are real-estate owned (REO; 5.9%), one loan (3.3%) which is over 90 days delinquent and four loans (6.9%) that are current.

Maturity Concentration: While defeased collateral has increased, Fitch remains concerned about a number of highly leveraged loans, which may have trouble refinancing. Excluding the specially serviced assets, 80.5% of the pool is scheduled to mature in 2017. The majority of the 2017 loan maturities are concentrated during the third and fourth quarters (48.5% and 25.6% of pool, respectively).

Largest Contributors to Modeled Losses: The largest contributor to Fitch-modeled losses is the Northwood Centre loan (3.3% of pool), which is secured by a 493,746 square foot (sf) office building located in Tallahassee, FL. The property was originally constructed as a regional mall in 1967 and operated as a mall until 1985. The majority of the property was converted into office space.

The loan was transferred to special servicing on March 9, 2016 because the State of Florida Legislature voted on March 6, 2016 to prohibit any further lease payments on the property due to mold issues. The State of Florida, which has occupied the property since 1989, had delivered notices of violations on a few of their leases at the property. Subsequently, the borrower failed to make the April 2016 loan payment and the loan went into default.

Since loan origination, property occupancy has ranged between 90% and 100%, with the State of Florida occupying the majority of space (nearly 80% of NRA) and accounting for the majority of the revenues (over 85% of total revenues). As of the December 2015 rent roll, the property was 92% occupied; however, the special servicer has indicated that all departments of the State of Florida have since vacated, except for the Department of Economic Opportunity (6.5% of NRA; 32,258 sf), thus dropping current occupancy to approximately 14%. Remediation plans with the mold issues are on hold until litigation regarding a breach of lease is finalized between the borrower and the State of Florida. Legal counsel continues to monitor litigation, while also dual tracking foreclosure with workout negotiations. A recent appraisal valuation of the property indicates significant losses upon liquidation.

The next largest contributor to Fitch-modeled losses is the Morgan 7 RV Park Portfolio asset (2.5%). The loan, which was transferred to special servicing in October 2011 for delinquent payments, was initially secured by a portfolio of seven recreational vehicle (RV) parks totaling 1,586 RV sites located in Maine (3 parks), New York (2), Michigan (1), and New Jersey (1). All seven properties were foreclosed upon between March 2013 and July 2015. The Michigan and New Jersey assets were sold in September 2014 and the Maine assets were sold in July 2015. The remaining two New York assets, American Campgrounds (310 pads; located in Gansevoort, NY) and Camp Waubeeka (500 pads; located in Copake, NY), only operate seasonally between May through October. The special servicer indicated these two assets were traded in a September 2016 auction with closing expected in late October. Significant losses are expected upon liquidation.

The third largest contributor to Fitch-modeled losses is the 500 East Main Street asset (1.6%), a 230,316 sf office property located in Norfolk, VA. The loan was transferred to special servicing in July 2013 for imminent default and went into monetary default in July 2014. The asset became REO in April 2016. Occupancy has continually declined over the past few years. As of the August 2016 rent roll, the asset was 58.9% occupied, down from 68.1% at year-end (YE) 2015, 71.4% at YE 2014 and YE 2013, 74.5% at YE 2012 and 84% at issuance. The special servicer indicated the asset traded in a September 2016 auction with closing expected in late October. Significant losses are expected upon liquidation.

RATING SENSITIVITIES

The Stable Outlooks on classes A-4, AM and AM-A reflects sufficient credit enhancement and the expectation for continued paydown. In the determination of the 'AAAsf' and 'Asf' ratings, Fitch's analysis considered additional stresses in its base case analysis to factor in refinancing risks, including a full loss on the Northwood Centre loan. The distressed classes (those rated below 'Bsf') may be subject to further downgrades as additional losses are realized.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

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

Fitch has downgraded the following classes:

--$168 million class AJ to 'CCsf' from 'CCCsf'; RE 55%;

--$56.8 million class AJ-A to 'CCsf' from 'CCCsf'; RE 55%;

--$31.6 million class B to 'Csf' from 'CCsf'; RE 0%;

--$21.1 million class C to 'Csf' from 'CCsf'; RE 0%.

In addition, Fitch has affirmed the following classes:

--$811.9 million class A-4 at 'AAAsf'; Outlook Stable;

--$210 million class AM at 'Asf'; Outlook Stable;

--$51.9 million class AM-A at 'Asf'; Outlook Stable;

--$28.1 million class D at 'Csf'; RE 0%;

--$24.6 million class E at 'Dsf'; RE 0%;

--$836,852 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%.

The class A-1, A-2, A-3, A-SB, and A-1A certificates have paid in full. Fitch does not rate the class P, Q, S and T certificates. Fitch previously withdrew the ratings on the interest-only class XP and XC certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)

https://www.fitchratings.com/site/re/873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013444

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013444

Endorsement Policy

https://www.fitchratings.com/regulatory

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Source: Fitch Ratings

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