Fitch Affirms BACM 2007-4
KEY RATING DRIVERS
The affirmations are the result of sufficient credit enhancement and overall stable performance of the underlying collateral since Fitch's last review. Loans representing 94.8% of the remaining pool are scheduled to mature in 2017, including 10 defeased loans (14.3%) and three anticipated repayment date loans (1.6%). Fitch expects the majority of these loans will pay off at maturity; however, Fitch's stressed analysis indicates some of the more highly leveraged loans may have trouble refinancing and could default..
Fitch modeled losses of 11.4% for the remaining pool; expected losses on the original pool balance total 11.5%, including $114.4 million (5.1% of the original pool balance) in realized losses to date. Fitch has designated 17 loans (23.6%) as Fitch Loans of Concern, which includes three specially serviced assets (1.1%).
As of the September 2016 remittance report, the transaction has paid down 44.1%% to $1.25 billion, down from $2.2 billion at issuance. Cumulative interest shortfalls in the amount of $5.8 million are currently affecting classes J through S.
The three largest contributors to Fitch-modeled losses remain the same since the last rating action.
The largest contributor to modeled losses is an interest-only loan (8.5%) secured by a 231,512 square foot (sf) office tower located in La Jolla, CA. According to the March 2016 rent roll, the property was 95.5% occupied, a significant improvement from the property's trough performance in 2009, when occupancy bottomed out at 55% as the commercial real estate sector struggled through the recession. While occupancy has recovered, these gains are partially offset by rent concessions which have limited the ability of rental income to increase in-step with occupancy.
The property continues to operate with debt service shortfalls, though it is noted that the sponsor, Irvine Company, has come out of pocket to fund all shortfalls since loan closing. The cash flow underperformance is also partially mitigated by the average in-place rent at the tower relative to market rates; rents at the property are approximately 29% below market. As there is additional rollover prior to loan maturity, there is potential to negotiate higher rents as leases expire. For the trailing nine months ending March 31, 2016, the net operating income debt service coverage ratio (NOI DSCR) was 0.70x, compared to 0.35x in 2012, 0.46x in 2010, 0.76x in 2008, and 1.29x underwritten at issuance.
The second largest contributor to losses is an interest-only loan (5.1%) secured by a 256,670 sf office property located in Scottsdale, AZ. Loan performance has recovered somewhat from recessionary lows; however, the loan remains highly levered based on stressed analysis of the current NOI. As of March 2016 rent roll, property was 95.3% leased, compared to 98% at YE2015 and 93.8% at issuance. Per the servicer, the physical occupancy at the property is 87.5%. The second largest tenant, which leases 8.4% until March 2017, has vacated but is still paying rent. The servicer is marketing the vacant space. In addition, the largest tenant, which occupies 11% of the property, has indicated they will remain at the property for an additional six months after their current lease expiration (May 2017), and will vacate thereafter. The servicer-reported first quarter 2016 (1Q16) DSCR was 1.26x, compared to 1.3x at YE2015, 1.17x at YE2014 and 1.50x at issuance.
The third largest contributor to losses is an interest-only loan (1.5%) secured by a 248,900 sf industrial property located in Phoenix, AZ. The property had been vacant for two years since February 2012 after the former single tenant vacated upon lease expiration. Effective October 2014, a new tenant signed a 10-year triple-net lease to occupy the entire property. The servicer-reported 1Q16 DSCR was 1.10x, compared to 0.78x at YE2014, -0.33x at YE2014 and 1.16x at issuance.
The Stable Outlooks on classes A-4 through A-J reflect sufficient credit enhancement (CE) and expected continued paydown. Although CE on these classes has increased since the last rating action, a significant percentage of the pool matures in 2017 (over 94%), with the second largest loan having its sponsor cover debt service. Class A-J may be subject to negative rating migration should loans not refinance at maturity as expected; however, upgrades may also be possible for this class should CE increase as paydowns continue without further significant defaults. The distressed classes (those rated below 'Bsf') may be subject to further downgrades as additional losses are realized.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following classes:
--$537.9 million class A-4 at 'AAAsf'; Outlook Stable;
--$155.1 million class A-1A at 'AAAsf'; Outlook Stable;
--$223.1 million class A-M at 'AAAsf'; Outlook Stable;
--$178.5 million class A-J at 'Bsf'; Outlook Stable;
--$22.3 million class B at 'CCCsf'; RE 45%;
--$19.5 million class C at 'CCCsf'; RE 0%;
--$22.3 million class D at 'CCCsf'; RE 0%;
--$22.3 million class E at 'CCsf'; RE 0%;
--$13.9 million class F at 'CCsf'; RE 0%;
--$16.7 million class G at 'CCsf'; RE 0%;
--$27.9 million class H at 'Csf'; RE 0%.
--$8.4 million class J at 'Dsf'; RE 0%;
--$0 million 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%;
--$0 class Q at 'Dsf'; RE 0%.
Fitch does not rate class S. Class A-1, A-2, A-3, and A-SB notes are paid in full. The rating on class XW was previously withdrawn.