Fitch Upgrades One and Affirms 10 Classes of MLMT 2004-KEY2
KEY RATING DRIVERS
The upgrade is due to increasing credit enhancement and the relatively stable performance of the pool. Since the prior rating action, one of the specially serviced loans was disposed from the trust, resulting in a \\$310,085 trust loss.
The pool remains concentrated with 17 of the original 119 loans remaining. There are five specially serviced assets (68.1% of the pool), all of which are real-estate-owned (REO). Two loans (5.1% of the pool) are defeased and seven loans (15.4% of the pool) are fully amortizing. Interest shortfalls have climbed steadily, given the status of the loans in special servicing. At the last rating action, class G was the most senior bond being shorted interest. As of the February distribution, interest shortfalls are affecting classes E through DA.
The largest contributor to modeled losses is Castaic Village Shopping Center. The asset is a 125,422 sf anchored retail center located approximately 40 miles north of Los Angeles. The asset has been in special servicing since November 2010 and became REO in March 2012. The former grocery anchor, Ralphs, went dark in January 2014 but will continue to pay rent through the end of its lease in October 2017. A large number of other tenants have also vacated, leaving the property 20.8% physically occupied as of December 2015. According to the special servicer, there has been no recent leasing activity, and the property is not currently being marketed for sale. A February 2015 appraisal indicates a sale of the asset at the current value would result in a significant loss.
The second largest contributor to projected losses is West River Shopping Centre. The property is an anchored retail center located in Farmington Hills, Michigan. Kohl's, originally the second largest tenant, vacated in August 2011 and this space has not yet been released. The asset was transferred to special servicing in May 2012 and became REO in April 2014. Target anchors the property via a ground lease extending to January 2020. Two other major tenants, an independent movie theater and an Office Max, recently executed lease extensions. The asset was 68.5% occupied as of November 2015. Despite the recent leasing activity, the property value continues to decline. A June 2015 appraisal valued the property well below the outstanding debt.
Future upgrades to classes D and E are possible should the value of the specially serviced assets improve through leasing efforts. The Outlook for class D is Positive indicating that upgrades to this class are possible should resolutions occur at better than anticipated recoveries. Distressed classes will be subject to downgrades as losses are realized.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch upgrades the following rating and revised the Outlook as follows:
--\\$22.1 million class D to 'BBBsf' from 'BBsf'; Outlook to Positive from Stable.
Fitch affirms the following classes and assigns REs as indicated:
--\\$12.5 million class E at 'CCCsf'; RE 100%;
--\\$15.3 million class F at 'Csf'; RE 70%;
--\\$11.1 million class G at 'Csf'; RE 0%;
--\\$10 million class H at 'Dsf'; RE 0%;
--\\$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-1A, A-2, A-3, A-4, B and C certificates have paid in full. Fitch does not rate the class Q and DA certificates. Fitch previously withdrew the ratings on the interest-only class XC and XP certificates.