News Column

Fitch Takes Various Actions on MSCI 2004-HQ4

May 22, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded one distressed class, upgraded two classes, and affirmed 12 classes of Morgan Stanley Capital I Trust's (MSCI) commercial mortgage pass-through certificates, series 2004-HQ4. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrades are a result of increased credit enhancement from principal paydown as well as defeased loans with upcoming maturities. The downgrade of the distressed class is the result of losses being realized since last review. Fitch modeled losses of 5.7% of the remaining pool; expected losses on the original pool balance total 4.9%, including $49.3 million (3.6% of the original pool balance) in realized losses to date. Fitch has designated eight loans (9.2%) as Fitch Loans of Concern, which includes one specially serviced asset (1.7%).

As of the May 2014 distribution date, the pool has 38 loans remaining and the aggregate principal balance has been reduced by 77.6% to $307.5 million from $1.37 billion at issuance. Per the servicer reporting, six loans (14.4% of the pool) are defeased. Interest shortfalls are currently affecting classes H through Q.

The largest contributor to expected losses is a 44,206 square foot (sf) mixed use retail/office property (1.7% of the pool), located in Glendale, California. The loan was transferred to the special servicer in March 2014 due imminent default caused by a drop in occupancy. Occupancy recently dropped to 20% after a tenant occupying 39% of the net rentable area (NRA) vacated. The borrower has hired CBRE to market and lease up the space. According to the servicer the strategy is to dual track foreclosure and forbearance discussions.

The next largest contributor to expected losses is a 53,265 sf unanchored retail property (3.4%) located in Valencia, California. The occupancy as of March 2014 was 83.6% with the possibility for 28% rollover through 2015. The net operating income (NOI) debt service coverage ratio (DSCR) as of year-end 2013 was 1.18x which declined from 1.26x as of year-end 2012.

The third largest contributor to expected losses is a 352 unit multifamily complex (2.7%) located in Cincinnati, Ohio. The NOI DSCR as of year-end 2013 was 1.20x which declined from 1.52x as of year-end 2012. According to the borrower the property is struggling due to the large amount of vacancies from a reduction in Section 8 traffic, an increase in bad debt from a lack of quality tenants, and an increase in operating expenses.

The largest loan in the pool, Bank of America Plaza (54.8%), is a 1,385,251 sf 55 story office building located in downtown Los Angeles, California. The occupancy as of December 2013 was approximately 93% and very little rollover is expected through 2014. The NOI DSCR as of September 2013 was 2.26x and 2.19x as of year-end 2012. The loan is set to mature in September 2014.

RATING SENSITIVITY

The Outlook on class C is revised to Positive as upgrades may be possible with continued paydown and increased credit enhancement as loans mature in 2014. Classes A-7, B, D, E, and F have Stable Outlooks as no rating changes are expected. The Rating Outlook on class G remains Negative as downgrades are possible if additional loans transfer to special servicing or expected losses increase. Although credit enhancement has increased due to amortization, loan pay-offs and defeasance, the pool is becoming more concentrated. In addition, almost 90% of the pool matures in 2014 and maturity defaults are possible.

Fitch downgrades the following class as indicated:

--$12 million class H to 'Csf' from 'CCsf', RE 80%.

Fitch upgrades the following classes as indicated:

--$195.8 million class A-7 to 'AAAsf' from 'AAsf', Outlook Stable;

--$15.4 million class B to 'AAsf' from 'Asf', Outlook Stable.

Fitch affirms the following classes and assigns or revises Rating Outlooks as indicated:

--$18.8 million class C at 'BBBsf', Outlook to Positive from Stable;

--$13.7 million class D at 'BBB-sf', Outlook Stable;

--$24 million class E at 'BBsf', Outlook Stable;

--$10.3 million class F at 'Bsf', Outlook to Stable from Negative;

--$12 million class G at 'B-sf', Outlook Negative;

--$5.5 million 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 O at 'Dsf', RE 0%;

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

The class A-1, A-2, A-3, A-4, A-5 and A-6 certificates have paid in full. Fitch does not rate the class Q and S certificates. Fitch previously withdrew the ratings on the interest-only class X-1 and X-2 certificates.

Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 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 >> CMBS >> Criteria Reports

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831356

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

Darren Liss

Director

+1 212-908-0753

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Committee Chairperson

Britt Johnson

Senior Director

+1 312-606-2341

or

Media Relations, New York

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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