Fitch Affirms BSCMS 2006-PWR11

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed all classes of commercial mortgage pass-through certificates from Bear Stearns Commercial Mortgage Securities Trust, series 2006-PWR11. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations are the result of increasing credit enhancement as a result of loan payoffs, but offset by an increase in adverse selection for the remaining collateral. The transaction has become highly concentrated with only 11 loans remaining, eight (80.4%) of which are in special servicing. Inclusive of the specially serviced loans, 98.8% of the remaining pool is considered as Fitch Loan of Concern (FLOC).

As of the April 2016 distribution date, the principal balance has been reduced by 83% to $317.3 million from $1.61 billion at issuance. Total realized losses to date equal 3.5% of the original pool balance. Interest shortfalls in the amount of $4.7 million are affecting classes G, H, L, O and P.

The largest contributors to modeled losses are the Investcorp Retail Portfolio 1 loan (30.3% of the remaining pool balance) and the Investcorp Retail Portfolio 2 loan (27.8%). Both loans were structured as interest-only at origination and are cross-collateralized and cross-defaulted. The collateral consists of eight retail properties totalling approximately 1.6 million square feet (sf), seven of which are located in Ohio and one in Indiana. Anchor tenants are Wal-Mart, Sam's Club, Kohl's, Hobby Lobby and Best Buy.

These two loans were transferred to the special servicer in November 2015 due to imminent default, as the borrower pre-emptively indicated they would be unable to pay off the loans at the February 2016 maturity. The borrower continues to pay debt service and the loans remain current. Currently, the servicer workout strategy is to foreclose upon the loans with a target completion date of October 2016. The combined occupancy as of year-end (YE) 2015 for Investcorp Retail Portfolio 1 was 89%, unchanged YE2014. The YE2015 servicer reported debt service coverage ratio (DSCR) was 1.04x, compared to 1.08x at YE2014 and 1.13x at YE2013. The combined occupancy for Investcorp Retail Portfolio 2 was 92% at YE2015, increased from 88% at YE2014. The YE2015 servicer reported DSCR was 1.22x, compared to 1.14x at YE2014 and 1.17x at YE2013. The interest-only loans are sponsored by Investcorp and Casto.

The second largest contributor to modeled losses (6.9%) is a 144,147 sf retail property in Athens, GA. The loan transferred to special servicing in December 2013 due to payment default. The loan became a REO asset in January 2015. As of the March 2016 rent roll, the property was 57% occupied by six tenants, compared to 70.4% at July 2014. The decline in occupancy was primarily due to Bed Bath & Beyond's expected vacancy upon lease expiration of January 2016. The current major tenants include Barnes & Noble (15.5% of net rentable area [NRA] with lease extended six years until September 2020), Beall's Outlet (14.7% until January 2022), and Rugged Warehouse (9.2% until March 2018).

In addition, Fitch remains concerned with the SBC - Hoffman Estates loan (18.3%), which is collateralized by a 1.69 million sf office campus located in Hoffman Estates, IL. The whole loan consists of two pari passu A notes. Only the A-2 note is included in this transaction. The property is 100% leased on a triple-net basis to SBC Services, Inc. until Aug. 14, 2016 and the lease will not be renewed. Since the loan was not paid off on its ARD date in December 2010, excess cash has since been captured to pay down the loan at an accelerated amortization rate. As of the April 2016 remittance date, the loan has been paid down by 40.8% of its original balance.

RATING SENSITIVITIES

Upgrades are unlikely in the near term given the percentage of the pool in special servicing, as there is potential for fluctuation in asset value estimates. Fitch has conducted sensitivity analysis to evaluate the impact on the outstanding ratings in the event of default. Under various loan loss scenarios, credit enhancement for class A-M passes the 'AAA' rating hurdle, hence the rating on class A-M is expected to remain stable. The Negative Outlooks on class A-J indicate that future downgrades are possible in the event the SBC - Hoffman Estates loan has difficultly releasing the significant space that will become available in August 2016; loans expected to refinance in near term do not successfully pay off; or realized losses on the specially serviced loans assets exceed Fitch's expectations. The distressed classes (rated below 'B') may be subject to further rating actions as losses are realized.

DUE DILIGENCE USAGE

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

Fitch has affirmed the following ratings:

--$10 million class A-M at 'AAAsf'; Outlook Stable;

--$146.4 million class A-J at 'BB/sf'; Outlook Negative;

--$37.2 million class B at 'CCCsf'; RE 50%;

--$23.2 million class C at 'CCsf'; RE 0%;

--$27.9 million class D at 'CCsf'; RE0%;

--$18.9 million class E at 'Csf''CCsf'; RE0%;

--$20.9 million class F at 'Csf'; RE0%';

--$18.9 million class G at 'Csf''; RE0%;

--$14.3 million class H at 'Dsf'; RE0%.

Classes J through O have been depleted due to realized losses and are affirmed at 'Dsf'; RE 0%. Class A-1, A-2, A-3, A-AB, A-4 and A-1A have paid in full. Class P is not rated by Fitch. Fitch has previously withdrawn the ratings of the interest-only class X.

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. 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. 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=1004472

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004472

Endorsement Policy

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160513005681/en/

Fitch Ratings
Primary Analyst
Amy Gan
Director
+1-212-908-9143
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In