News Column

Fitch Upgrades 4 Classes of MSC 2004-IQ8

May 22, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded four classes and affirmed nine classes of Morgan Stanley Capital I Trust commercial mortgage pass-through certificates series 2004-IQ8. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrades are the result of increasing credit enhancement from continued paydown and better than expected recoveries on liquidated loans. The affirmations are due to sufficient credit enhancement to offset increasing concentration risk; upgrades were limited due to the tranche thinness of the subordinate classes.

As of the May 2014 distribution date, the pool's aggregate principal balance has been reduced by 90.6% to $71.3 million from $759.2 million at issuance. Fitch has designated 14 loans (29.4%) as Fitch Loans of Concern, three loans (15.7%) are defeased, and none of the loans are specially serviced. Interest shortfalls are currently affecting classes H through O.

The ninth largest loan in the pool, 5100 Eastern Avenue is considered a Fitch Loan of Concern. The loan is secured by a 42,021 square foot (sf) office building located in Commerce, CA in Los Angeles County. In March 2014, the sole tenant, Roland Corp., had exercised to terminate half of their lease. The termination option required Roland Corp. to make a termination payment which was captured in an escrow account. The termination payment is expected to cover any shortfalls to debt service payments through maturity in August 2014, although refinance risk exists.

The largest contributor to expected losses is the Meridian Office Building loan (1.9% of the pool), which is secured by a 30,582 sf office building located in Tempe, AZ. The property has suffered from poor performance over the last several years due to tenant rollover and high market vacancies. As of year-end 2013, the property was operating with negative cash flows, but has remained current since issuance. The servicer reported occupancy was 48% as of year-end 2013.

The next largest contributor to expected losses is the Big Creek Plaza loan (1.1%), which is secured by a 12,333 sf unanchored retail center located in Parma, OH, southwest of Cleveland. The property has struggled with performance due to low occupancy and declining revenues. The servicer reported occupancy and debt service ratio (DSCR) was 59% and 0.72x, respectively, as of year-end 2013. The loan has remained current since issuance and matures in July 2014.

RATING SENSITIVITY

Rating Outlooks on classes B through E remain Stable due to increasing credit enhancement and continued paydown. Although credit enhancement is high for classes G and H, this can be eroded quickly as there are several loans occupied by one or few tenants which present binary risk.

Fitch upgrades the following classes and revises Rating Outlooks as indicated:

--$14.5 million class B to 'AAAsf' from 'AAsf', Outlook Stable;

--$21.8 million class C to 'AAAsf' from 'Asf', Outlook to Stable from Negative;

--$7.6 million class D to 'BBBsf' from 'BBB-sf', Outlook to Stable from Negative;

--$8.5 million class E to 'BBsf' from 'Bsf', Outlook to Stable from Negative;

Fitch affirms the following classes and assigns REs as indicated:

--$4.7 million class F at 'CCCsf', RE 100%;

--$6.6 million class G at 'CCsf', RE 100%;

--$5.7 million class H at 'Csf', RE 95%;

--$1.8 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%.

The class A-1, A-2, A-3, A-4 and A-5 certificates have paid in full. Fitch does not rate the class O 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=831374

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

Sean Gibbs

Associate Director

+1-212-908-0311

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

sandro.scenga@fitchratings.com


Source: Fitch Ratings


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