Fitch Ratings NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded three classes and affirmed 14 classes of ML-CFC Commercial Mortgage Trust (MLCFC) commercial mortgage pass-through certificates series 2006-3. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrades reflect increased credit enhancement due to actual and expected continued paydown of the senior classes due to scheduled amortization and the pool's upcoming maturity schedule (95.6% of the pool matures by year end 2016). The ratings also reflect the significant defeased collateral supporting the notes. Since Fitch's last rating action an additional 10 loans (8%) have defeased.
Fitch modeled losses of 7.4% of the remaining pool; expected losses on the original pool balance total 11.3%, including $145.9 million (6% of the original pool balance) in realized losses to date. Fitch has designated 50 loans (24%) as Fitch Loans of Concern, which includes eight specially serviced assets (3.3%).
As of the August 2015 distribution date, the pool's aggregate principal balance has been reduced by 28.5% to $1.73 billion from $2.43 billion at issuance. Per the servicer reporting, 16 loans (17% of the pool) are defeased. Interest shortfalls are currently affecting classes D through Q.
RATING SENSITIVITIES
Rating Outlooks on classes A-4 through AJ are considered Stable due to increasing credit enhancement and continued paydown. Downgrades to the senior classes are not likely, although are likely to the distressed classes as further losses are realized. Fitch will continue to monitor the changing collateral given the large percentage of the pool maturing in the near future.
The rating on class AM have been capped at 'Asf' due to possibility for future interest shortfalls and the occurrence of previous shortfalls. According to Fitch's global criteria for rating caps, Fitch will not assign or maintain 'AAAsf' or 'AAsf' ratings for notes that it believes have a high level of vulnerability to interest shortfalls or deferrals, even if permitted under the terms of the documents (for more information please see the full report titled 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions', dated May 28, 2014, at www.fitchratings.com).
The largest contributor to expected losses is the Westin Arlington Gateway loan (5%), the third largest loan in the pool. The loan is secured by a 336-room, full-service hotel in Arlington, VA located eight miles east of Capital Hill and three miles from Arlington's business district. The property's net operating income (NOI) has declined since issuance from reduced revenues. NOI debt service coverage ratio (DSCR) has also seen a year over year decline since the loan began amortizing in 2009. The trailing 12 month (TTM) March 2015 NOI DSCR reported at 0.81x, compared to 0.84x at YE 2014, 0.97x at YE 2013, and 1.05x at YE 2012. Property performance as of TTM March 2015 reported at 73.4% occupancy, $184.55 ADR, and $135.40 RevPAR, compared to YE December 2013 at 75% occupancy, $190.62 ADR, and $142.95 RevPAR. The borrower had replaced the property management company in 2013 to help improve the property's performance. The loan remains current as of the August 2015 remittance date.
The second largest contributor to Fitch-modeled losses is secured by a 295,000 square foot retail center located in Woonsocket, RI (1.3%). The loan transferred to special servicing in June 2013 due to monetary default. The property had experienced cash flow issues due to the expiration of an anchor tenant's lease in 2013 (Shaw's Supermarket, previously 18% of the net rentable area). The special servicer had pursued foreclosure, and the property became REO as of April 2014. Occupancy was reported at 64% as of December 2014. The servicer is in process of stabilizing the asset.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following classes and assigned Outlooks as indicated:
--$242.5 million class AM to 'Asf' from 'BBBsf'; Outlook Stable;
--$191 million class AJ to 'BBsf' from 'CCCsf'; Assign Stable Outlook;
--$48.5 million class B to 'CCCsf' from 'CCsf'; RE 70%.
Fitch affirms the following classes:
--$879.3 million class A-4 at 'AAAsf'; Outlook Stable;
--$272.2 million class A-1A at 'AAAsf'; Outlook Stable;
--$18.2 million class C at 'CCsf'; RE 0%;
--$48.5 million class D at 'Csf'; RE 0%;
--$21.2 million class E at 'Csf'; RE 0%;
--$11.7 million class F at 'Dsf'; RE 0%;
--$0 million class G at 'Dsf'; RE 0%;
--$0 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-2 A-3, and A-SB certificates have paid in full. Fitch does not rate the class Q certificate or the interest only class XR certificate. Fitch previously withdrew the ratings on the interest-only class XP and XC certificates.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990309
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990309
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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