Fitch Upgrades One Class in MSCI 2007-HQ 13

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded one class and affirmed 14 classes of Morgan Stanley Capital I Trust (MSCI) commercial mortgage pass-through certificates series 2007-HQ 13. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrade to class A-1A reflects the strong performance of the remaining multifamily collateral, including two defeased loans (totaling $41.0 million), improving credit enhancement and no history or risk of interest shortfalls.

Fitch modeled losses of 12.5% of the remaining pool; expected losses on the original pool balance total 23.2%, including $163.9 million (15.8% of the original pool balance) in realized losses to date. Fitch has designated six loans (21.0%) as Fitch Loans of Concern, which includes two specially serviced assets (4.0%).

As of the March 2015 distribution date, the pool's aggregate principal balance has been reduced by 40.9% to $614.4 million from $1.04 billion at issuance. Per the servicer reporting, three loans (7.3% of the pool) are defeased. Interest shortfalls are currently affecting classes A-J through P.

The largest contributor to expected losses (6.2% of the pool), is secured by a 17-story, 244,300 square foot (sf) office building located in Irvine, CA. While occupancy has been challenged by market conditions, it has begun to trend upward from its historically low level of approximately 60% since 2011. As of year-end (YE) 2013 and year-to-date (YTD) Sept. 30 2014, occupancy has remained steady at 68.0%. The servicer- reported debt service coverage ratio (DSCR) improved to 1.08x as of YTD September 30, 2014 after trending below 1.0x the previous three years. Although no tenant represents more than 6.7% of total space, 19.2% of leased space is scheduled to expire in 2016.

The next largest contributor to expected losses (8.5% of the pool), is secured by a 217,639sf, seven-story mixed-use (office and retail) property located in Atlanta, Georgia. The loan was transferred back to the master servicer in January 2015 after transferring to the special servicer in November 2012 due to imminent default. Several modifications in 2014 allowed the Borrower to secure financing to cover leasing costs in efforts to improve occupancy and the repayment of the financing.

Servicer- reported DSCR improved to 1.33x as of YTD Sept. 30, 2014 from 1.16x at YE 2012. Occupancy increased to 96.1% from 75.0% during the same period. Per the Dec. 31, 2014 rent roll, 35.0% of leased space is scheduled to expire in 2016, primarily attributed to the largest tenant whose lease expires in September. The tenant has until January 2016 to exercise one of its five-year renewal options. The loan is current and managed under a hard lockbox.

The third largest contributor to expected losses (2.9% of the pool), is a specially-serviced loan secured by a 176,240sf office property located in Milford, CT. The loan transferred to the special servicer in July 2014 due to imminent default. Occupancy was a reported 28.5% and DSCR was well below 1.0x as of YE 2014. The special servicer is pursuing foreclosure.

RATING SENSITIVITIES

Rating Outlooks on classes A-1A through A-3 are revised to Stable due to increasing credit enhancement from continued pay down and the higher percentage of defeased collateral (7.3% of the pool). Classes A-2 and A-3 are capped at 'A' as they have previously incurred interest shortfalls. Fitch will not assign or maintain 'AAAsf' or 'AAsf' ratings for notes that it believes have a high level of vulnerability to interest shortfalls or deferrals, even if permitted under the terms of the documents (see 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions', dated May 28, 2014, for more details). Downgrades to class A-M are possible should additional losses be realized.

Fitch upgrades the following class:

--$114.1 million class A-1A to 'AAsf' from 'Asf'; Outlook to Stable from Negative.

Fitch affirms the following classes as indicated:

--$17.9 million class A-2 at 'Asf'; Outlook to Stable from Negative;

--$334.5 million class A-3 at 'Asf'; Outlook to Stable from Negative;

--$103.9 million class A-M at 'CCCsf'; RE 70%;

--$44 million class A-J at 'Dsf'; RE 0%;

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

--$0 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%.

The class A-1 certificates have paid in full. Fitch does not rate the class M, N, O and P certificates. Fitch previously withdrew the rating on the interest-only class X certificates.

Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 10, 2014 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:

Structured Finance then CMBS then Criteria Reports

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Mar. 31, 2015);

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

--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (May 28, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

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

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982444

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.

Fitch Ratings
Primary Analyst
Tiffany Pierce
Associate Director
+1 212-908-9107
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1 212-908-0785
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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