Fitch Downgrades Three Classes of JP Morgan 2008-C2

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded three and affirmed 18 classes of J.P. Morgan Chase Commercial Mortgage Securities Trust series 2008-C2. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The downgrades are largely due to higher expected losses on specially serviced loans, as recent valuations have resulted in lower recovery estimates. The affirmations reflect sufficient credit enhancement relative to Fitch expected losses and an increase in pool defeasance. Fitch modeled losses of 20.2% of the remaining pool; expected losses on the original pool balance total 26.1%, including $157.1 million (13.5% of the original pool balance) in realized losses to date. Fitch has designated 22 loans (38.3%) as Fitch Loans of Concern, which includes six specially serviced assets (23.4%).

As of the June 2016 distribution date, the pool's aggregate principal balance has been reduced by approximately 37.6% to $728 million from $1.16 billion at issuance. Six loans (10%) are currently defeased. There are 62 loans remaining of the original 80. Interest shortfalls are currently affecting classes A-M through T.

The largest contributor to expected losses remains the Westin Portfolio, the current pool's largest loan (15.2%). The loan is secured by two Westin resort hotels: the 487-room Westin La Paloma in Tucson, AZ, with a 27-hole Jack Nicklaus golf course and spa, and the 416-room oceanfront Westin Hilton Head, in Hilton Head, SC, which features a Westin Heavenly Spa, the first 'Heavenly Spa' opened in the U.S. Both resorts offer numerous restaurants, pools and over 100,000 sf of meeting space. The loan, which transferred to special servicing soon after securitization (due to a borrower bankruptcy), fell short of performance expectations as a result of the recession and the impact it had on the hotels' performance. In early 2012, a loan modification was completed which required the newly formed sponsor, Southwest Value Partners, to timely perform the property improvement plans (PIP) agreed upon in the reorganization and approved by Westin.

The sponsor has completed significant renovations on both properties over the last few years, and the properties appear attractive and well kept. The sponsor continues to work on stabilizing performance and growing room revenue through Westin's strong reservation system. The franchise agreement with the Westin Hilton Head expires on Dec. 31, 2019, and the agreement with Westin La Paloma expires on Dec. 31, 2028.

Updated valuations for the properties have not been made available, largely due to the lengthy court proceedings. Additionally, Fitch modeled a conservative value in its analysis, and will closely monitor any performance updates including updated valuations as they become available.

The next contributor to expected losses is a specially serviced asset (3.3%) secured by a 252,759 sf portfolio of three office-flex properties in Norcross, GA. A receiver was appointed in late 2013, and the asset became real estate owned (REO) in early 2014. The special servicer continues efforts to stabilize the property with a focus on leasing up vacant space and repairing deferred maintenance items. The subject's market remains weak however, and competition for tenants is high among landlords.

The next contributor to expected losses is a 331,677 sf real estate owned asset comprising a 331,677 sf office property located in Baton Rouge, LA. The asset, which transferred to special servicing in September 2015 for monetary default, is reported to be in poor condition with substantial deferred maintenance, according to the servicer. A receiver was appointed in May 2016 and the servicer is pursuing foreclosure.

RATING SENSITIVITIES

The Rating Outlooks for classes A-4, A-4FL, and A-1A remain Negative based on a lack of updated values for certain specially serviced loans, as well as the limited progress made on the workout strategies, which keeps the trust exposed to the volatility that surrounds specially serviced loan values. The Outlook for class A-SB has been revised to Stable as this class is on a payment schedule that fully repays the note by April of 2017, an anniversary that occurs before the majority of loans in the pool reach their 10-year maturity dates. Monthly principal is expected to be adequate to repay the class on time. Dispositions from previously liquidated loans have eroded credit support to the lower classes in the trust. Downgrades to the distressed classes are possible if expected losses increase or if these classes are further affected by repeated interest shortfalls.

DUE DILIGENCE USAGE

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

Fitch has downgraded the following classes:

--$333.7 million class A-4 to 'BBB' from 'Asf'; Outlook Negative;

--$136.4 million class A-4FL to 'BBB' from 'Asf'; Outlook Negative;

--$52.1 million class A-1A to 'BBB' from 'Asf'; Outlook Negative.

Fitch affirms the following classes and revises Outlooks as indicated:

--$12.6 million class A-SB at 'Asf'; Outlook to Stable from Negative;

--$116.6 million class A-M at 'CCsf'; RE 45%;

--$61.2 million class A-J at 'Csf'; RE 0%;

--$14.6 million class B at 'Csf'; RE 0%;

--$240,629 million class C at 'Dsf'; 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%;

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

--$0 class T at 'Dsf'; RE 0%.

Class 'NR' is not rated.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882401

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

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

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

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008837

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008837

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/20160713006444/en/

Fitch Ratings
Primary Surveillance Analyst
Christopher Bushart
Senior Director
+1-212-908-0606
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Brook Sutherland
Senior Director
+1-312-606-2346
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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