2009-12-08 00:43:39 -
Fitch Ratings takes various rating actions on six classes of Morgan Stanley Capital I Trust's (MSCI) commercial mortgage pass-through certificates, series 2005-HQ5 including downgrades of six classes. A detailed list of rating actions follows at the end of this press release.
The downgrades are the result of Fitch's loss expectations and its prospective views regarding cash flow declines and commercial real estate market values. Fitch forecasts potential losses of 2.5% for this transaction, should market conditions not recover. Today's rating actions are based on the full losses of 2.5% as a majority of loans mature in the next five years. The bonds with Negative Rating Outlooks indicate classes that may be downgraded in the future.
To determine potential defaults for each loan,
Fitch assumed cash flow would decline by 10% from year-end 2008. That is consistent with the analysis used in its review of recent vintage transactions whereby cash flow was assumed to decline 15% from year-end 2007 projected over a three year period. If the stressed cash flow would cause the loan to fall below 0.95 times (x) debt service coverage ratio (DSCR), Fitch assumed the loan would default during the term. To determine losses, Fitch used the above stressed cash flow and applied a market cap rate by property type, ranging between 7.5% and 9.5%, to derive a value. If the loan balance at default is less than Fitch's derived value, the loan would realize that amount of loss. These loss estimates were reviewed in more detail for loans representing 78.7% of the non-defeased pool and, in certain cases, revised based on additional information and/or property characteristics. Loss expectations attributed to loans reviewed in detail represent approximately 79.9% of the 3.5%.
Approximately 69.6% of the mortgages mature within the next five years as follows: 0.4% in 2009, 0.7% in 2010, 10.6% in 2011, 2.1% in 2012, none in 2013 and 55.8% in 2014. An additional 28.8% are scheduled to mature in 2015.
Fitch identified 17 Loans of Concern (17.1%) within the pool, four of which (2.3%) are specially serviced. One of the Fitch Loans of Concern (9.1%) is within the transaction's top 15 loans, and none of the top 15 are specially serviced.
Of the top 15 loans, one loan (9.1%) is assumed to default at maturity with losses expected. Twelve of the remaining top 15 loans may default at maturity or the anticipated repayment date based on an insufficient accrued equity position as calculated in Fitch's refinance test, however, no losses are expected at this time. A loan would pass the refinance test if the stressed cash flow would achieve a 1.25x DSCR as calculated based on a 30-year amortization schedule and an 8% coupon.
The largest contributor of loss is 1401 H Street (9.1% of the pool). Of the loans in special servicing, the largest contributors of expected term losses are Rainbow Design Center (0.8% of the pool) and The Shoppes at Lake Bryan (0.6%).
The partial interest-only loan at 1401 H Street is secured by a 353,219 square foot (sf), 12-story Class A office building located in the East End submarket of Washington, D.C., an area highly concentrated in government tenants. Property occupancy was 62.8% as of October 2009 rent roll, which is a significant decrease from 95.9% at issuance due to a large GSA tenant vacating their space after its lease expired in 2008.
However, the borrower expects new leases to be signed in the near future to bring occupancy closer to the East End submarket vacancy level of 10.1%, as reported by CBRE as of third quarter 2009. Approximately 17% of the remaining leases are scheduled to expire by the end of 2012. As of October 2009, $3.5 million remained in the TI/LC reserve. The sponsor is an affiliate of Teachers Insurance and Annuity Association of America (TIAA).
Rainbow Design Center, the largest non-performing specially serviced asset, is a 64,488 sf neighborhood retail center located in Las Vegas, NV. The asset transferred to special servicing in January 2009 for imminent default and the borrower is seeking payment relief. The last reported debt service coverage ratio (DSCR) was 0.88 times (x) as of June 2008. As of the November 2009 remittance, the loan is greater than 90 days delinquent.
The Shoppes at Lake Bryan is a 33,125 sf retail strip center located in Lake Buena Vista, FL. The loan was transferred to special servicing for monetary default in April 2009. The reported occupancy is 100%; however, there are significant collection issues with tenants. As of the November 2009 remittance, the loan is greater than 90 days delinquent.
Fitch has downgraded, removed from Rating Watch Negative, and assigned Loss Severity (LS) ratings and Rating Outlooks to the following classes as indicated.
-- $13.3 million class H to 'BBB-/LS5' from 'BBB'; Outlook Stable;
-- $20.9 million class J to 'BB/LS5' from 'BB+'; Outlook Negative;
-- $5.7 million class K to 'B/LS5' from 'BB-'; Outlook Negative;
-- $5.7 million class L to 'B/LS5' from 'B+'; Outlook Negative;
-- $5.7 million class M to 'B-/LS5' from 'B'; Outlook Negative.
Fitch has downgraded and assigned Loss Severity (LS) ratings and Rating Outlooks to the following classes as indicated.
-- $15.2 million class G to 'BBB/LS5' from 'BBB+'; Outlook Stable.
Fitch has affirmed, removed from Rating Watch Negative, assigned Loss Severity (LS) ratings and Rating Outlooks to the following classes as indicated.
-- $3.8 million class N at 'B-/LS5'; Outlook Negative;
-- $1.9 million class O at 'B-/LS5'; Outlook Negative.
Fitch also affirms the following classes and assigns LS ratings, Rating Outlooks and Recovery Ratings as indicated.
-- $19.1 million class A-2 at 'AAA/LS1'; Outlook Stable;
-- $159.4 million class A-3 at 'AAA/LS1'; Outlook Stable;
-- $66.4 million class A-AB at 'AAA/LS1'; Outlook Stable;
-- $711.3 million class A-4 at 'AAA/LS1'; Outlook Stable;
-- $112.4 million class A-J at 'AAA/LS3'; Outlook Stable;
-- Interest-only class X-1 at 'AAA'; Outlook Stable;
-- Interest-only class X-2 at 'AAA'; Outlook Stable;
-- $30.5 million class B at 'AA/LS4'; Outlook Stable;
-- $19.0 million class C at 'AA-/LS5'; Outlook Stable;
-- $15.2 million class D at 'A+/LS5'; Outlook Stable;
-- $17.1 million class E at 'A/LS5'; Outlook Stable;
-- $15.2 million class F at 'A-/LS5'; Outlook Stable;
-- $3.8 million class P at 'CCC/RR1'.
Fitch does not rate the $14.8 million class Q. Class A-1 is paid in full.
Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 8, 2009 report, 'Surveillance Methodology for Recent Vintage U.S. CMBS,' which is available at ' www.fitchratings.com :
' under the following headers.
Structured Finance >> CMBS >> Criteria Reports
Fitch will release a report titled 'Morgan Stanley Capital I Trust 2005-HQ5' that will contain a graph of revised loss expectations for the transaction at ' www.fitchratings.com :
' under the following headers.
Structured Finance >> CMBS >> Special Reports
Additional information is available at ' www.fitchratings.com :
'.
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FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS :
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM :
'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Fitch Ratings, New YorkJeffrey Diliberto, +1-212-908-9173Adam
Fox, +1-212-908-0869Media Relations:Sandro Scenga,
+1-212-908-0278
sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com
