OREANDA-NEWS. Fitch Ratings has upgraded two classes, downgraded four below investment grade classes and affirmed four classes of Bear Stearns Commercial Mortgage Securities Trust's commercial mortgage pass-through certificates series 2004-PWR3 (BSCMSI 2004-PWR3). A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS
The upgrades to classes E and F are the result of increasing credit enhancement from loan disposals and continuing amortization as well as support from defeased collateral (1.2%). The downgrades to classes H, K, L and M reflect the pool's high concentration with only nine loans and one real estate owned (REO) asset (51.4% of the pool) remaining. Further, 70.8% of the pool consists of specially serviced assets.

Fitch capped the ratings for class F and G based on the transaction's concentration and substantial percentage of Fitch Loans of Concern (75.3%), which include two specially serviced assets.

As of the April 2016 distribution date, the pool's aggregate principal balance has been reduced by 94.2% to $64.4 million from $1.1 billion at issuance. Fitch modeled losses of 38.7% of the remaining pool; expected losses on the original pool balance total 3.6%, including $14.8 million (1.4% of the original pool balance) in realized losses to date. Interest shortfalls are currently affecting the distressed classes L through Q.

The largest contributor to expected losses is an REO, 504,746 square foot (sf) portion of a shopping center located in Clay, NY (51.4% of the pool). The mall is anchored by Macy's, Sears, and BJ's Wholesale Club, which are not part of the collateral. The loan transferred back to special servicing on Nov. 6, 2014 due to imminent default and has been REO since July 2015. The servicer reported debt service coverage ratio (DSCR) and occupancy were 1.23x and 78%, respectively, as of year-end (YE) 2015. Per the special servicer, the sale of the property will be considered after further lease up is achieved.

The next largest contributor to expected losses is a specially-serviced loan secured by a 370,120 sf community retail strip center located in Natrona Heights, PA (19.4% of the pool). The loan transferred to special servicing on Jan. 16, 2014 due to the borrower's failure to pay the loan off at maturity on Jan. 1, 2014. A foreclosure judgement was granted in September 2015 but was appealed by the borrower a month later. Foreclosure proceedings remain ongoing. The servicer reported DSCR and occupancy were 1.32x and 64%, respectively, as of year to date (YTD) Sept. 30, 2015.

The third largest contributor to expected losses is secured by a 21,071 sf retail property located in Lombard, IL (4.5% of the pool). Occupancy has remained at 51% since 2013 after the largest tenant (Pier 1; 50% of NRA) vacated upon its July 2013 lease expiration. The property is currently occupied by Potbelly (24%; lease expires Sept. 30, 2018) and Bitech Inc. (27%; lease expires Sept. 30, 2020). The servicer reported DSCR was 0.91x, as of YTD Sept. 30, 2015, compared to 2.16x at YE 2012. Fitch will continue to monitor the loan for leasing updates.

RATING SENSITIVITIES
The Outlooks for classes E and F remain Stable as no rating changes are expected at this time. The Negative Outlook for class G reflects the uncertain resolution surrounding the specially serviced loans and the possibility of increased losses. Further upgrades should be limited due to the concentrated nature of the pool. Downgrades are possible should pool performance decline or further losses be realized.

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

Fitch has upgraded the following classes:

--$200, 195 class E to 'AAAsf' from 'A+sf'; Outlook Stable;
--$15.2 million class F to 'Asf' from 'A-sf'; Outlook Stable.

Fitch has downgraded the following classes:

--$13.9 million class H to 'CCCsf' from 'Bsf'; RE 90%;
--$5.5 million class K to 'CCsf' from 'CCCsf'; RE 0%;
--$6.9 million class L to 'Csf' from 'CCsf'; RE 0%;
--$5.5 million class M to 'Csf' from 'CCsf'; RE 0%.

Fitch has affirmed the following classes:

--$11.1 million class G at 'BBB-sf'; Outlook Negative;
--$2.8 million class J at 'CCCsf'; RE 0%;
--$2.8 million class N at 'Csf'; RE 0%;
--$455,196 class P at 'Dsf'; RE 0%.

Classes A-1, A-2, A-3, A-4, B, C and D have paid in full. Class Q is not rated.