Fitch Downgrades 3 Distressed Classes of BSCMS 2006-PWR11
OREANDA-NEWS. Fitch Ratings has downgraded three and affirmed 14 classes of commercial mortgage pass-through certificates from Bear Stearns Commercial Mortgage Securities Trust, series 2006-PWR11.A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The downgrades are the result of increased loss expectations as well as concerns over potential defaults of larger Fitch Loans of Concern (LOC) due to upcoming maturities. Fitch has identified 20 loans (42.5% of the pool) as Fitch Loans of Concern (LOC), five of which (34.4%) are among the top 15 loans. Four of the LOCs are in special servicing (7.3%), including two real estate owned (REO) assets (3.3%). The majority of the pool will mature within the next five months: 14.7% in 2015 (one of which is an ARD loan, representing 0.2% of the pool) and 78% by March 2016 (three of which are ARD loans, representing 1.3% of the pool).
The affirmations are due to sufficient credit enhancement as a result of continued principal paydown since Fitch's last rating action. Fitch modeled losses of 15.8% of the remaining pool; expected losses on the original pool balance total 10.8%, including losses already incurred to date (3.5%).
As of the October 2015 distribution date, the pool's aggregate principal balance has been reduced by 53.6% to $862.3 million from $1.61 billion at issuance. Six loans have defeased (3.4%). Interest shortfalls in the amount of $3.9 million are affecting classes G, H, L, O and P.
The largest contributors to modeled losses are the Investcorp Retail Portfolio 1 loan (11.2% of the remaining pool balance) and the Investcorp Retail Portfolio 2 loan (10.2%), which are cross-collateralized and cross-defaulted retail portfolios and represent the largest loans in the pool. The collateral consists of eight retail properties totaling approximately 1.6 million square feet (sf), seven of which are located in Ohio and one in Indiana. Anchor tenants are Wal-Mart, Sam's Club, Kohl's, Hobby Lobby and Best Buy.
The combined occupancy as of 31 March, 2015 for Investcorp Retail Portfolio I was 86%, unchanged from year-end (YE) 2013. The 1st quarter 2015 (1Q'15) servicer reported debt service coverage ratio (DSCR) was 0.91x, compared to 1.08x at YE2014, 1.13x at YE2013, 1.14x at YE2012 and 1.03x at YE2011. The combined occupancy for Investcorp Retail Portfolio 2 was 89% at 1Q'15, unchanged from YE2014. The 1Q'15 servicer reported DSCR was 1.16x, compared to 1.14x at YE2014, 1.17x at YE2013 and 1.22x at YE2012. The interest-only loans are sponsored by Investcorp and Casto. The crossed loans mature in February 2016. Given the lagging performance, a maturity default is possible.
The second largest contributor to modeled losses (2.4%) is a 144,147 sf retail property in Athens, GA. The loan transferred to special servicing in December 2013 due to payment default. The loan became a real estate owned (REO) asset in January 2015. As of July 2015 rent roll, the property was 70% occupied. Party City (9.2% of NRA), formerly the third largest tenant, vacated in September 2015 upon lease expiration. The current major tenants include Bed Bath & Beyond (18.9% of NRA lease expiration January 2016) and Barnes & Noble (15.5% of NRA with lease extended six years till September 2020). Bed Bath & Beyond has given notice they will not renew upon lease expiration.
The third largest contributor to modeled losses (3.2%) is a loan secured by Hickory Point Mall, 424,700 sf of an 824,102 sf regional mall in Forsyth, IL, 180 miles southwest of Chicago near Decatur, IL. The loan was transferred to special servicing in November 2014 due to imminent default. The loan matures in December 2015, and the borrower has indicated that a full repayment at maturity is unlikely. As of July 2015, the property was 82% occupied. JC Penney (second largest tenant), closed the store in May 2014 but is still paying rent until Oct. 31, 2015 when its lease expires. The other four anchors (Berger's, Sears, Kohl's and Von Maur) own their own buildings and are not part of the loan collateral. The loan remains current.
Fitch continues to be concerned with the SBC - Hoffman Estates loan (7.3%), which is collateralized by a 1.69 million sf office campus located in Hoffman Estates, IL. The whole loan consists of two pari passu A notes. Only the A-2 note is included in this transaction. The property is 100% leased on a triple-net basis to SBC Services, Inc. until Aug. 14, 2016. The single tenant has indicated they will not renew their lease upon expiration. The loan has passed its ARD date in December 2010 and has a final maturity date of Dec. 1, 2035. Since the ARD date, excess cash is being captured in a lock box and the loan is hyperamortizing which currently results in approximately $700,000 in principal paydown per month. Fitch has applied additional stresses including significant losses to the current debt amount as well as the assumed debt when the tenant's lease expires.
Additional stresses to the larger loans of concern, including the SBC - Hoffman Estates loan, were performed to assess the impact of potential defaults at maturity to Fitch's ratings. The ratings on the 'AAA' rated classes are expected to remain stable as they are not expected to be significantly impacted by additional potential defaults given the expected increase in credit enhancement due to upcoming paydown. Future downgrades on classes A-J are possible should expected losses increase due to larger loans defaulting at their upcoming maturity dates. The distressed classes (rated below 'B') may be subject to further rating actions as losses are realized.
Fitch has downgraded the following ratings:
--$37.2 million class B to 'CCCsf' from 'Bsf'; RE 65%;
--$23.2 million class C to 'CCsf' from 'CCCsf'; RE 0%;
--$18.9 million class E to 'Csf' from 'CCsf'; RE 0%.
Fitch has affirmed the following ratings:
--$307.6 billion class A-4 at 'AAAsf'; Outlook Stable;
--$61.5 million class A-1A at 'AAAsf'; Outlook Stable;
--$185.9 million class A-M at 'AAAsf'; Outlook Stable;
--$146.4 million class A-J at 'BBsf'; Outlook Negative;
--$27.9 million class D at 'CCsf'; RE 0%;
--$20.9 million class F at 'Csf'; RE 0%';
--$18.9 million class G at 'Csf''; RE 0%;
--$14.3 million class H at 'Dsf'; RE 0%.
Classes J through O have been depleted due to realized losses and are affirmed at 'Dsf'; RE 0%. Class A-1, A-2, A-3 and A-AB have paid in full. Class P is not rated by Fitch. Fitch has previously withdrawn the ratings of the interest-only class X.