Fitch Upgrades Two Classes from JP Morgan 2007-FL1
OREANDA-NEWS. Fitch Ratings has upgraded two and affirmed 11 classes of J.P. Morgan Chase Commercial Mortgage Securities Corp. series 2007-FL1. A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The upgrades are the result of improved performance and higher appraisal valuation of the remaining asset in the pool, the Resorts International Portfolio (Resorts International), since Fitch's last rating action.
Resorts International currently consists of two hotel/gaming properties totaling 439 rooms (following the previous release of two hotel/gaming properties): Bally's Tunica (Bally's) and Resorts Tunica (Resorts), located in Robinsonville, MS and Tunica, MS. The properties' revenue is primarily generated from gaming; room revenue is a small component of overall revenue. The loan was foreclosed on and the properties became real estate owned (REO) in November 2011. The servicer's workout strategy continues to focus on stabilization and repositioning the properties before liquidation. Renovations at both properties have been completed and the current property manager, which has been in place since January 2014, is working to improve the properties' operations to maximize the value of the asset.
Although remaining well below expectations at issuance, the overall collateral performance has been trending up in recent years. The servicer reported year-end (YE) 2015 debt service coverage ratio (DSCR) for Bally's is 1.84x, compared to 1.30x at YE2014 and 1.16x at YE2013. The servicer reported YE2015 DSCR for Resorts was 0.45x, compared to -0.25x at YE2014 and -0.43x at YE2013. As of YE2015, Bally's was 62.5% occupied and Resorts 58%, respectively, compared to 88.6% and 90% at issuance.
As Resorts International is the only remaining loan in the transaction, Fitch's analysis has factored in the binary risk associated with high concentration. In addition, the properties' YE2015 cash flow performance, collateral quality, the competitive nature of the gaming industry and local market conditions were also considered in Fitch's analysis. The ratings were determined from modeling results that are derived from implied net cash flow, based on stressed asset appraisal valuation provided by the servicer, and by applying a stressed capitalization rate. The whole loan consists of three pari-passu A notes, the non-pooled rake components, and various subordinated notes. Only the A1 note and associated non-pooled rake components are included in this trust. Based on the most current valuations and market conditions, Fitch expects limited recoveries from Resorts International upon liquidation.
The special servicer is no longer advancing payments after an appraisal reduction deemed any future advances as non-recoverable. Interest shortfalls continue to accumulate and have totaled $11.3 million as of March 2016 remittance report, affecting all classes with the exception of the A1. Contrary to the order of priorities in most transactions, this deal calls for interest on prior shortfalls to be paid at the end of the waterfall.
Future upgrades are unlikely due to the high concentration of the transaction and the quality of the remaining asset. The transaction's rated final distribution date is November 2018. Should Resorts International's resolution not occur as anticipated by the servicer in late 2017, downgrades are likely. In addition, future downgrades to the distressed classes (below 'BB') are possible as losses are 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:
--$8.6 million class F to 'BBsf' from 'CCCsf/RE100%; Outlook Stable Assigned;
--$26 million class G to 'CCC/sf' from 'CCsf'; RE50%.
Fitch has affirmed the following classes:
--$35.7 million class H at 'Csf'; RE0%;
--$32.5 million class J at 'Csf'; RE0%;
--$10.3 million class K at 'Dsf'; RE0%.
--$0 Class L at 'Dsf'; RE0%;
--$11.9 million class RS-1 at 'Csf'; RE0%;
--$12.8 million class RS-2 at 'Csf'; RE0%;
--$15.6 million class RS-3 at 'Csf'; RE0%;
--$11.1 million class RS-4 at 'Csf'; RE0%;
--$15.4 million class RS-5 at 'Csf'; RE0%;
--$13.2 million class RS-6 at 'Csf'; RE0%;
--$7.6 million class RS-7 at 'Csf'; RE0%.
Classes A1, A2. B, C, D, E, and the interest-only class X-1 have paid in full. Fitch withdrew its rating on the interest-only class X-2 at prior review.