Fitch Ratings has downgraded four and affirmed four classes of Banc of America Commercial Mortgage Inc. (BACM 2003-1) commercial mortgage pass-through certificates series 2003-1. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrades reflect an increase in expected losses primarily associated with the largest loans in special servicing. The Negative Outlooks reflect uncertainty related to the expected loss of the largest specially serviced loan coupled with asset concentration and adverse selection of the remaining pool.
The pool has experienced $14.2 million (1.3% of the original pool balance) in realized losses to date. The pool is concentrated with six loans remaining, five of which are in special servicing (83.1%).
Classes G and H are expected to remain stable based on sufficient credit enhancement and expected paydown from imminent defeasance proceeds. The assignment of Negative Outlooks reflects the potential for downgrades given the uncertainty related to expected losses and ultimate resolution of the largest specially serviced asset. The distressed classes (those rated below 'Bsf') are subject to further downgrades as losses are realized or if realized losses to specially serviced loans exceed Fitch's expectations.
As of the May 2013 distribution date, the pool's aggregate principal balance has been reduced by 93.6% to $72.9 million from $1.13 billion at issuance. Per the servicer reporting, one loan (16.9% of the pool) is currently defeased. Interest shortfalls are currently affecting classes J through P.
The largest contributor to expected losses is the specially serviced 1020 Holcombe Blvd. loan (37.3% of the pool), which is secured by a 270,227 square foot (sf) office building located in Houston, TX. The loan transferred to special servicing in May 2012 as a result of the largest tenant stating its intention to vacate at lease expiration, in December 2014. The tenant currently represents 46% of the NRA and once vacated, building occupancy would decline to 29%. The current cash flow is sufficient to service the debt and is projected to cover debt service until December 2014. As of February 2013, occupancy for the building was 70% with NOI DSCR of 2.20x. A receiver has been appointed and there are no active prospects for the vacant space.
The next largest contributor to expected losses is the specially serviced Ashby Crossing Apartments loan (30.9%), which is secured by a 288-unit student housing property located in Harrisonburg, VA. The loan was previously transferred to special servicing in September 2010 resulting in a modification of the loan in May 2011. The modification was granted in exchange for a capital contribution applied to the replacement reserve used to renovate the property. As of April 2013, occupancy for the property was 55% with a DSCR of 0.78x. The servicer is evaluating various resolution strategies while in discussion with the borrower.
Fitch downgrades the following classes and assigns Recovery Estimates (REs) as indicated:
--$7.7 million class K to 'Bsf' from 'BBsf', Outlook Negative;
--$6.5 million class L to 'CCCsf' from 'Bsf', RE 20%;
--$6.5 million class M to 'CCsf' from 'CCCsf', RE 0%;
--$5.2 million class N to 'Csf' from 'CCsf', RE 0%.
Fitch affirms the following classes but revises Rating Outlooks as indicated:
--$6.9 million class G at 'AAAsf', Outlook to Stable from Negative;
--$10.3 million class H at 'Asf', Outlook to Stable from Negative.
Fitch affirms the following classes as indicated:
--$21.9 million class J at 'BBB-sf', Outlook Negative;
--$3.9 million class O at 'Csf', RE 0%.
Classes A-1, A-2, B, C, D, E, F, ES-A, ES-B, ES-C, ES-D, ES-E, ES-F, ES-G, ES-H, SB-A, SB-B, SB-C, SB-D, and SB-E have paid in full. Fitch does not rate the classes P, WB-A, WB-B, WB-C and WB-D certificates. Fitch previously withdrew the ratings on the interest-only class XC, XP-1 and XP-2 certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 18, 2012 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' (May 24, 2013);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 18, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria -- Effective 4 August 2011 to 6 June 2012
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
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Fitch Ratings, Inc.
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