Fitch Ratings has downgraded six classes of Banc of America Commercial Mortgage Inc., commercial mortgage pass-through certificates series 2004-6. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades are the result of significant expected losses on the remaining pool. The pool currently consist of five remaining assets, the largest two loans represent 77% of the pool and are the largest drivers of loss. These specially-serviced mall properties face the potential for continued value declines given recent store closures announced by anchor tenants JCPenney and Macy's at Upper Valley Mall (41.6%) and upcoming anchor tenant lease maturities at Steeplegate Mall (35.6%). Limited future paydown is expected as only one loan, the Veritas DGC Headquarters, (21.5%) matures in October 2015. The remaining performing loan, Springbrook Plaza (1.4%) matures in October 2019.
Fitch modeled losses of 79.4% of the remaining pool; expected losses on the original pool balance total 9.8%, including $11.8 million (1.2% of the original pool balance) in realized losses to date. As of the December 2014 distribution date, the pool's aggregate principal balance has been reduced by 89.2% to $103.1 million from $956.6 million at issuance. No loans are defeased. Interest shortfalls are currently affecting classes J through P.
The largest contributor to expected losses is the specially-serviced Upper Valley Mall (41.6% of the pool), which is 496,895 square feet (sf) of a 750,377 sf regional mall located in Springfield, OH. The loan was previously transferred to special servicing in June 2010 due to imminent default. In May 2011, the original $47 million loan was modified and bifurcated into an A note ($27 million) and a B note ($20 million) and the maturity date was extended to July 2014. The loan returned to the master servicer in 2011 but transferred back to the special servicer in March 2014, after the borrower, an affiliate of Simon Property Group, gave notice that it will not be able to repay the loan at maturity. The loan became real estate owned (REO) through a deed in lieu of foreclosure in November 2014.
Property performance is expected to deteriorate given the recent announcement of store closings by both JCPenney and Macy's at the property. Macy's store is anchor-owned. Although JCPenney executed a short-term lease extension in 2014 extending the lease term to September 2017, the timing of the closures is unknown. There is an additional vacant anchor space that has been vacant since January 2013. Sears is currently in operation in their anchor-owned store. As of year-end 2013, the servicer-reported debt service coverage ratio (DSCR) based on the net operating income (NOI) on the A-note was 1.47x, total mall occupancy was 66.3% and inline occupancy was 63%. The reported DSCR based on the entire debt amount was 0.83x. The special servicer's disposition strategy is a sale in 2015.
The next largest contributor to expected losses is the Steeplegate Mall loan (35.6%), which is secured by a 482,097 sf regional mall located in Concord, NH. The mall is anchored by Sears (106,731 sf), The Bon Ton (87,736 sf), and JCPenney (61,880 sf). Sears and JCPenney do not appear on their respective store closing lists; however, both have lease maturities in July 2015. The loan was previously transferred to special servicing in April 2009 due to bankruptcy of the loan's sponsor, General Growth Properties. The loan was restructured with maturity extended from 2009 to 2014 with a principal paydown. The loan returned to the master servicer in January 2010. The loan transferred to special servicing again in April 2014 as a result of the borrower, an affiliate of Rouse Properties, sending notice to the Master Servicer that they would not be able to repay the loan at maturity in October 2014. The borrower has consented to the appointment of a receiver and is working with the lender to negotiate a deed in lieu of foreclosure agreement. The special servicer is evaluating options to stabilize and market the property.
Steeplegate Mall is anchored by Sears (lease maturity July 2015), The Bon Ton (lease extended from 2015 to 2020), and JCPenney (lease maturity July 2015). According to the December 2013 rent roll, the property was 88.4% occupied, up from 87.4% at year-end (YE) 2012, and compared to 93% at issuance. Property NOI has declined significantly since issuance. The YE 2013 NOI is 64% below issuance, which is mainly attributed to lower base rents, lower expense reimbursements, and lower percentage rents. For YE 2013, the NOI DSCR was 0.61x compared to 0.83x, 0.69x, and 1.34x at YE 2012, YE 2011, and at issuance, respectively.
RATING SENSITIVITIES
The Negative Rating Outlook on class C reflects the potential for full losses on the specially serviced loans. If greater than 100% losses are anticipated before the class is likely to pay in full, the rating could be downgraded. The distressed classes are subject to further rating actions as losses are realized.
Fitch downgrades the following classes and revises Recovery Estimates (REs) as indicated:
--$17.9 million class D to 'CCCsf' from 'BBsf', RE 65%;
--$9.6 million class E to 'CCCsf' from 'B-sf', RE 0%;
--$9.6 million class G to 'Csf' from 'CCCsf', RE 0%;
--$13.2 million class H to 'Csf' from 'CCsf', RE 0%;
--$6 million class J to 'Csf' from 'CCsf', RE 0%;
--$4.8 million class K to 'Csf' from 'CCsf', RE 0%.
Fitch affirms the following classes as indicated:
--$8.5 million class C at 'BBB-sf', Outlook Negative;
--$14.3 million class F at 'CCCsf', RE 0%;
--$4.8 million class L at 'Csf', RE 0%;
--$3.6 million class M at 'Csf', RE 0%;
--$3.6 million class N at 'Csf', RE 0%;
--$4.8 million class O at 'Csf', RE 0%.
Fitch does not rate the class P certificates. Fitch previously withdrew the ratings on the interest-only class X-C and X-P certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 10, 2014 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 10, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=975115
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