Fitch Downgrades 1 Distressed Class of MSCI 2006-TOP23

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded one class and affirmed 15 classes of Morgan Stanley Capital I Trust (MSCI) commercial mortgage pass-through certificates series 2006-TOP23. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations reflect stable performance of the transaction since Fitch's last rating action. The downgrade reflects anticipated losses from the specially serviced assets. Fitch modeled losses of 5% of the remaining pool; expected losses on the original pool balance total 5.2%, including $27.3 million (1.7% of the original pool balance) in realized losses to date. Fitch has designated 32 loans (18.9%) as Fitch Loans of Concern, which includes three specially serviced assets (3%).

As of the June 2015 distribution date, the pool's aggregate principal balance has been reduced by 29.7% to $1.14 billion from $1.61 billion at issuance. Per the servicer reporting, 12 loans (11.3% of the pool) are defeased. Interest shortfalls are currently affecting classes H through P.

The largest contributor to expected losses is secured by a 155,012 square foot (sf) mixed-use (office and retail) property (1.4% of the pool) located in Savannah, GA. The loan transferred to the special servicer in July 2013 due to a payment default. Foreclosure occurred in May 2014 and the property subsequently became real estate owned (REO). The servicer has addressed some deferred maintenance issues and continues to increase occupancy, which is currently at 55%. A sale is expected to occur in late 2015.

The next largest contributor to expected losses is also specially serviced and is secured by a portfolio of industrial properties (0.7%) located in Illinois. The loan transferred to the special servicer January 2013 due to the borrower's failure to remit the November 2012 payment. One of the four properties was sold in June 2013 with the net proceeds applied to the loan. Foreclosure occurred on the remaining three properties in November 2014. The servicer is now attempting to the sell the properties via auction. According to the April 2015 rent roll, the portfolio is 75% occupied.

The third largest contributor to expected losses is secured by a 260 unit multifamily property (0.9%) built in 2004 and located in Phoenix, AZ. The loan was placed on the servicer watchlist due to declining occupancy, rents, and debt service coverage ratio. The debt service coverage ratio (DSCR) of the loan dropped from 2.10x at issuance to 0.64x as of year-end 2014. Occupancy at the property was 79% as of year-end 2014. Despite the low coverage ratio, the loan remains current.

RATING SENSITIVITIES

Rating Outlooks on classes A-4 through D are expected to remain Stable due to increasing credit enhancement. Upgrades may be warranted with continued paydown and stable performance. The distressed class E through K notes are susceptible to further downgrades as losses are realized.

DUE DILIGENCE USAGE

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

Fitch downgrades the following class as indicated:

--$10.1 million class H to 'Csf' from 'CCsf', RE 0%.

Fitch affirms the following classes and revises the RE as indicated:

--$12.1 million class F at 'CCCsf', RE 40%.

Fitch affirms the following classes as indicated:

--$726.9 million class A-4 at 'AAAsf'; Outlook Stable;

--$161.4 million class A-M at 'AAAsf'; Outlook Stable;

--$113 million class A-J at 'Asf'; Outlook Stable;

--$32.3 million class B at 'BBB-sf'; Outlook Stable;

--$16.1 million class C at 'BBsf'; Outlook Stable;

--$26.2 million class D at 'Bsf'; Outlook Stable;

--$14.1 million class E at 'CCCsf'; RE 100%;

--$14.1 million class G at 'CCsf'; RE 0%;

--$4 million class J at 'Csf'; RE 0%;

--$4 million class K at 'Csf'; RE 0%;

--$891,411 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%.

The class A-1, A-2, A-3 and A-AB certificates have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the rating on the interest-only class X certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Global Structured Finance Rating Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987309

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987309

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/20150701006443/en/

Fitch Ratings
Primary Analyst
Daniel Anderson
Associate Director
+1-312-606-2305
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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