Fitch Upgrades 1 Class of MLMT 2003-KEY1
OREANDA-NEWS. Fitch Ratings has upgraded one class and affirmed seven classes of Merrill Lynch Mortgage Trust's (MLMT) commercial mortgage pass-through certificates series 2003-KEY1. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrade of class G reflects increased credit enhancement as a result of a $16.9 million paydown received from the January 2016 liquidation of two loans. Although the credit enhancement is high and recovery prospects remain strong for the class, further upgrades were not warranted given the pool's concentration as only two of the original 80 loans remain. Fitch modeled losses of 13.8% of the remaining pool; expected losses on the original pool balance total 4%, including $41.7 million (3.95% of the original pool balance) in realized losses to date.
As of the January 2016 distribution date, the pool's aggregate principal balance has been reduced by 99% to $6.8 million from $1.05 billion at issuance. Interest shortfalls are currently affecting classes K through Q. There are no specially serviced loans as of the January 2016 payment date. Both of the remaining loans have lease rollover risks and the largest loan in the pool (54.2%) has a low debt service coverage ratio (DSCR).
The largest loan in the pool is secured by a 35,892 square foot (sf) retail center located in Tamarac, FL. The property is anchored by Walgreens (42% of the net rentable area [NRA]) with a lease expiration of June 2021. Occupancy declined to 93% per the October 2015 rent roll, compared to 100% reported for December 2014 and December 2013. In addition the loan has been hyper amortizing since passing its initial anticipated repayment date (ARD) in Nov. 1, 2013. As a result, the net operating income (NOI) DSCR has steadily declined to 0.94x for year to date (YTD) September 2015, from 1.16x at year end (YE) 2014 and 1.33x at YE 2013. Near-term rollover risks includes three leases (14.2% of the NRA) expiring in 2017, and the second largest tenant - a preparatory elementary and middle school (31%) - expiring in June 2018. The loan remains current as of the January 2016 remittance, and has a final maturity date of Nov. 1, 2033.
The second loan remaining in the pool is secured by a 30,263 sf retail center in San Diego, CA (45.8% of the pool). The property is shadow anchored by Albertson's and CVS Pharmacy. The largest collateral tenant is Auto Zone (21% of the NRA), which recently extended its lease for 10 years to November 2026 from November 2016. Per the September 2015 rent roll the property is 100% occupied, an increase from 86% reported for December 2014 and 89% for December 2013. There is near term rollover risk for the second largest tenant, Marlene's Hallmark (12%), whose current lease expires on Feb. 28, 2016. The NOI DSCR is strong, reporting at 2.11x for YTD September 2015, 2.09x for YE 2014, and 2.16x for YE 2013. The loan matures on Aug. 1, 2018, and remains current as of the January 2016 payment date.
The Rating Outlook on class G is considered Stable, as rating changes are not expected for the remaining life of the pool. Although the class has high credit enhancement, there is significant concentration risk with only two loans remaining and the potential for deterioration in performance at both properties due to rollover risks. The ratings on the distressed classes will remain at 'Dsf' due to incurred losses.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following rating, and assigned Outlooks as indicated:
--$1.0 million class G to 'BBBsf' from 'CCCsf'; Stable Outlook assigned.
Fitch affirms the following classes:
--$5.8 million class H at 'Dsf'; RE 85%;
--$0 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 P at 'Dsf'; RE 0%.
The class A-1, A-2, A-3, A-4, A-1A, B, C, D, E, F, and interest-only class X-P certificates have paid in full. Fitch does not rate class Q. Fitch also does not rate the rake classes WW-1, WW-2, WW-3, and interest only WW-X certificates. Fitch previously withdrew the rating on the interest-only class XC certificates.