Fitch Upgrades 3 & Affirms 18 Classes of MLMT 2007-C1

NEW YORK–(BUSINESS WIRE)–Fitch Ratings has upgraded three and affirmed 18 classes of Merrill
Lynch Mortgage Trust commercial mortgage pass-through certificates,
series 2007-C1 (MLMT 2007-C1). A detailed list of rating actions follows
at the end of this release.

KEY RATING DRIVERS

The upgrades to classes A-3, A-3FL, and A-SB are the result of increased
defeasance since Fitch’s last rating action; these classes are expected
to payoff from defeased collateral. The affirmations reflect the
relatively stable pool performance and the sufficient credit enhancement
relative to Fitch-modeled loss expectations. Overall, Fitch’s loss
projections are relatively unchanged since the last rating action. Fitch
modeled losses of 24% of the remaining pool; expected losses on the
original pool balance total 22%, including $354.1 million (8.7% of the
original pool balance) in realized losses to date. Fitch has designated
71 loans (54%) as Fitch Loans of Concern, which includes 10 specially
serviced assets (28.6%). There are also 49 loans, representing 57% of
the pool balance that are interest only for the full term.

As of the June 2016 distribution date, the pool’s aggregate principal
balance has been reduced by 44.7% to $2.24 billion from $4.05 billion at
issuance. Per the servicer reporting, 18 loans (7.7% of the pool) are
defeased. Interest shortfalls are currently affecting classes AJ through
Q.

The largest two contributors to expected losses are the
specially-serviced Empirian Multifamily Portfolio Pool 1 (13.1% of the
pool) and Pool 3 (10.7%) loans. Both loans were transferred back to the
special servicer in March 2016 due to Imminent Monetary Default due to
concerns over cash flow, required capital expenditures, and value of the
underlying collateral. Previously, the loans were returned back to the
master servicer in February 2013 after being modified. The modifications
consisted of bifurcating both loans into an A and a B note with a 70/30
split. Pool 1 was originally secured by 78 multifamily properties (7,964
units) located across eight states. Pool 3 was originally secured by 79
multifamily properties (6,864 units) located across eight states. The
borrower is permitted to release a limited amount of properties from the
portfolio prior to full payoff of the loans. Pool 1 has released 38
properties while Pool 3 has released 44 properties to date. The
properties within the two portfolios are generally of class B and C
collateral quality, many of which were constructed in the 1980s and lack
common amenities. Most of the properties have significant deferred
maintenance and only a small amount of the required repair obligations
have been completed on the remaining portfolio. As of January 2016, the
occupancy for Pool 1 and Pool 3 were approximately 91% and 93%,
representing an increase from the 87% and 89% reported at year-end 2013.
The year-end 2015 net operating income (NOI) debt service coverage ratio
(DSCR) for Pool 1 is 1.47x and Pool 3 is 1.13x.

The next largest contributor to expected losses is the Office Max
Headquarters loan (2.2% of the pool). The interest-only loan is secured
by a five-story, 354,098 square foot (sf) single-tenanted office
property located in Naperville, IL. The property served as the world
headquarters for Office Max but is now 100% vacant. Office Max’s lease
expires in May 2017 which is nearly coterminous with the loan’s maturity
in July 2017. According to the servicer there have been inquiries from
potential tenants but a lease has not been signed. Fitch will continue
to monitor this loan to see if it transfers to the special servicer.

RATING SENSITIVITIES

Rating Outlooks on classes A-3, A-3FL, and A-SB remain Stable due to the
bonds being fully covered by defeased collateral. Classes A-4 and A-1A
remain Negative as downgrades are possible if losses to the Empirian
Portfolios or other large assets in pool increase. Fitch will continue
to monitor property releases from the Empirian Portfolios and DRA
Colonial Office Portfolio, paying attention to the remaining collateral
to ensure the asset quality and performance reflects Fitch’s views from
the current review. The distressed classes (those rated below ‘B’) are
expected to be subject to further downgrades as losses are realized on
specially serviced loans.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to
this rating action.

Fitch upgrades the following classes as indicated:

–$10.5 million class A-3 to ‘AAAsf’ from ‘Asf’; Outlook Stable;

–$4.2 million class A-3FL to ‘AAAsf’ from ‘Asf’; Outlook Stable;

–$17.9 million class A-SB to ‘AAAsf’ from ‘Asf’; Outlook Stable.

Fitch affirms the following classes as indicated:

–$442.2 million class A-4 at ‘Asf’; Outlook Negative;

–$905.2 million class A-1A at ‘Asf’; Outlook Negative;

–$405 million class AM at ‘CCCsf’; RE 85%;

–$134.1 million class AJ at ‘Csf’; RE 0%;

–$85 million class AJ-FL at ‘Csf’; RE 0%;

–$86.1 million class B at ‘Csf’; RE 0%;

–$35.7 million class C at ‘Dsf’; RE 0%;

–$0 class D at ‘Dsf’; RE 0%;

–$0 class E at ‘Dsf’; RE 0%;

–$0 class F at ‘Dsf’; RE 0%;

–$0 class G at ‘Dsf’; RE 0%;

–$0 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 and A-2FL certificates have paid in full. Fitch does
not rate the class Q and AJ-FX certificates. Fitch previously withdrew
the rating on the interest-only class X certificates.

Additional information is available at ‘www.fitchratings.com‘.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Rating Caps and Limitations in Global Structured Finance
Transactions (pub. 16 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S.
Re-REMIC Criteria (pub. 13 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008303

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008303

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Darren Liss, +1-212-908-0753
Director
Fitch
Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee
Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media
Relations:
Sandro Scenga, New York, +1-212-908-0278
[email protected]