Fitch Upgrades One and Affirms 10 Classes of MLMT 2004-KEY2

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded one and affirmed 10 classes of Merrill Lynch Mortgage Trust 2004-KEY2. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrade is due to increasing credit enhancement and the relatively stable performance of the pool. Since the prior rating action, one of the specially serviced loans was disposed from the trust, resulting in a $310,085 trust loss.

The pool remains concentrated with 17 of the original 119 loans remaining. There are five specially serviced assets (68.1% of the pool), all of which are real-estate-owned (REO). Two loans (5.1% of the pool) are defeased and seven loans (15.4% of the pool) are fully amortizing. Interest shortfalls have climbed steadily, given the status of the loans in special servicing. At the last rating action, class G was the most senior bond being shorted interest. As of the February distribution, interest shortfalls are affecting classes E through DA.

The largest contributor to modeled losses is Castaic Village Shopping Center. The asset is a 125,422 sf anchored retail center located approximately 40 miles north of Los Angeles. The asset has been in special servicing since November 2010 and became REO in March 2012. The former grocery anchor, Ralphs, went dark in January 2014 but will continue to pay rent through the end of its lease in October 2017. A large number of other tenants have also vacated, leaving the property 20.8% physically occupied as of December 2015. According to the special servicer, there has been no recent leasing activity, and the property is not currently being marketed for sale. A February 2015 appraisal indicates a sale of the asset at the current value would result in a significant loss.

The second largest contributor to projected losses is West River Shopping Centre. The property is an anchored retail center located in Farmington Hills, Michigan. Kohl's, originally the second largest tenant, vacated in August 2011 and this space has not yet been released. The asset was transferred to special servicing in May 2012 and became REO in April 2014. Target anchors the property via a ground lease extending to January 2020. Two other major tenants, an independent movie theater and an Office Max, recently executed lease extensions. The asset was 68.5% occupied as of November 2015. Despite the recent leasing activity, the property value continues to decline. A June 2015 appraisal valued the property well below the outstanding debt.

RATING SENSITIVITIES

Future upgrades to classes D and E are possible should the value of the specially serviced assets improve through leasing efforts. The Outlook for class D is Positive indicating that upgrades to this class are possible should resolutions occur at better than anticipated recoveries. Distressed classes will be subject to downgrades as losses are realized.

DUE DILIGENCE USAGE

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

Fitch upgrades the following rating and revised the Outlook as follows:

--$22.1 million class D to 'BBBsf' from 'BBsf'; Outlook to Positive from Stable.

Fitch affirms the following classes and assigns REs as indicated:

--$12.5 million class E at 'CCCsf'; RE 100%;

--$15.3 million class F at 'Csf'; RE 70%;

--$11.1 million class G at 'Csf'; RE 0%;

--$10 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%;

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

The class A-1, A-1A, A-2, A-3, A-4, B and C certificates have paid in full. Fitch does not rate the class Q and DA certificates. Fitch previously withdrew the ratings on the interest-only class XC and XP 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. 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=999593

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999593

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/20160217006481/en/

Fitch Ratings
Primary Analyst
Roxanna Tangen
Associate Director
+1-312-368-3116
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Hannah James, +1-646-582-4947
[email protected]

Source: Fitch Ratings

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