NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded three and affirmed 12 classes of Wachovia Bank Commercial Mortgage Trust 2006-C25 (WBCMT 2006-C25) commercial mortgage pass-through certificates. A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The upgrades and affirmation to the senior four classes reflect increasing credit enhancement and expectation of further pay down. A real estate owned (REO) asset was reportedly liquidated by the special servicer for $28.9 million in late October.
As of the October 2016 distribution date, the pool's aggregate principal balance has been reduced by 93% to $193.4 million from $2.86 billion at issuance. The transaction is under collateralized by approximately $5 million. Interest shortfalls are currently affecting classes F through S.
Concentration and Adverse Selection: Although the transaction has experienced significant pay down, the pool is extremely concentrated with only nine loans or REO assets remaining; seven of which are currently in special servicing (81% of remaining collateral). The largest loan, which is currently in special servicing, accounts for 33.7% of the total pool balance.
Modeled Losses: Fitch modeled losses of 40.8% of the remaining pool; expected losses on the original pool balance total 7.9%, including $225.8 million (5.1% of the original pool balance) in realized losses to date. There have been no realized losses since the last rating action.
Fitch Loans of Concern: Eight of the nine remaining loans/REO assets are considered Fitch Loans of Concern (98.5% of the remaining collateral), including the seven specially serviced assets.
The largest contributor to modeled losses is the Hercules Plaza loan (33.7% of the pool), which was re-transferred to special servicing in July 2016 due to imminent monetary default. The loan is secured by a 517,000 sf office property located in Wilmington, DE. As of the October 2016 rent roll, the property was 55% occupied after the largest tenant vacated the property at its lease expiration in May 2016. Property cash flow is insufficient to cover debt service and operating expenses each month, and shortfalls have been funded from reserves. The special servicer is evaluating potential modification structures. The loan was previously modified by the special servicer in 2014, at which time the loan was extended two years through 2018.
The next largest contributor to modeled losses is the Quantum Buildings A/B loan (12.3% of the pool), which transferred to special servicing in February 2016 due to maturity default. The loan collateral consists of two office buildings totaling 284,163 sf, which are located in Colorado Springs, CO. Per the servicer reporting, the buildings are 100% and 53% leased to a single tenant, whose lease expires in 2021. A significant portion of the space is dark. The rent payments are current and a hard lockbox is in place. The Special Servicer is proceeding with enforcing the rights and remedies under the loan documents.
The adjacent Quantum Building C loan (4.1% of the pool) is also in special servicing for maturity default. The 122,000 sf property is currently 10% occupied by one tenant. However, a new lease is expected to be executed which will increase occupancy to 35%. The Special Servicer is also proceeding with enforcing the rights and remedies under the loan documents for this loan.
RATING SENSITIVITIES
The Stable Outlooks on classes B through E reflect the class's sufficient credit enhancement and expectation of continued pay down. Class B is expected to be paid in full at the next distribution date. Upgrades to classes C through E may be limited due to the increasing concentration of the pool and the potential for future interest shortfalls. The distressed classes (those rated below 'Bsf') may be subject to further downgrades as additional losses are realized.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following ratings:
--$1.7 million class B to 'AAAsf' from 'BBB-sf'; Outlook Stable;
--$35.8 million class C to 'Asf' from 'BBsf'; Outlook Stable;
--$17.9 million class E to 'Bsf' from 'CCCsf'; Outlook Stable assigned;
Fitch has affirmed the following classes as indicated:
--$32.2 million class D at 'Bsf'; Outlook Stable;
--$32.2 million class F at 'CCCsf'; RE 100%;
--$32.2 million class G at 'CCsf'; RE 10%.
--$32.2 million class H at 'Csf'; RE 0%;
--$14.2 million 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 O at 'Dsf'; RE 0%;
--$0 class P at 'Dsf'; RE 0%;
--$0 class Q at 'Dsf'; RE 0%.
The class A-1, A-2, A-3, A-PB1, A-PB2, A-4, A-5. A-1A, A-M and A-J certificates have paid in full. Fitch previously withdrew the rating on the interest-only class IO certificates. Fitch does not rate the class S certificates.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
https://www.fitchratings.com/site/re/882401
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130
U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/site/re/873395
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014640
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014640
Endorsement Policy
https://www.fitchratings.com/regulatory
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