Fitch Upgrades 3 Classes of MLMT 2004-KEY2

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded three classes and affirmed nine classes of Merrill Lynch Mortgage Trust 2004-KEY2. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Since Fitch's last rating action, the pool has experienced significant paydowns totaling 62 loans with an aggregate collateral balance paydown of approximately $407 million. The paydowns resulted in classes A-1A, A-4 and B to be paid in full and a partial paydown to class C. The upgrades and affirmations are based on the increased credit enhancement as the paydowns since last review resulted in less than anticipated losses.

The pool is now concentrated with only 18 of the original 119 loans remaining. Fitch has designated seven loans (69.2%) as Fitch Loans of Concern, which includes six specially serviced assets (67.4%). As of the April 2015 distribution date, the pool's aggregate principal balance has been reduced by 93.2% to $75.3 million from $1.12 billion at issuance. Per the servicer reporting, one loan (2.9% of the pool) is defeased. Interest shortfalls are currently affecting classes G through DA.

The largest contributor to expected losses is a 122,974 square foot (sf) retail center located in Castaic, CA. The loan transferred to special servicing in November 2010 due to payment default and foreclosure was completed in March 2012. Per the servicer, the anchor tenant, Ralph's Grocery, which occupies 44,190 sf (36% NRA), recently closed their store but is continuing to remit their contractual rent. Ralph's lease runs through October 2017. Rite Aid, the second largest tenant (23% NRA) vacated the property in July 2014. Several other tenants have vacated the property including Blockbuster, Starbucks and the free-standing Burger King. The special servicer is currently working to re-lease the larger spaces with some preliminary interest and is also marketing the property for sale. Financial information for 2014 was not available for analysis, but the 2014 appraisal indicated a value significantly lower than the outstanding loan balance.

The next largest contributor to expected losses is a 291,333 sf retail center located in Farmington Hills, MI. In 2012, Kohl's (which occupied 25% of the property) vacated, reducing occupancy to 70%. The loan was sent to special servicing in May 2012 due to payment default and foreclosure was completed in November 2013. Currently the special servicer is working to re-lease vacant space and extend several tenants in efforts to stabilize the property prior to disposition. Financial information for 2014 was not available for analysis, but the 2014 appraisal indicated a value less than the outstanding loan balance.

RATING SENSITIVITIES

Further upgrades to classes D and E are possible should the larger specially serviced loans improve in collateral value through leasing efforts. Downgrades to the remaining classes are possible should loss expectations increase.

Fitch upgrades the following classes and assigns Rating Outlooks and REs as indicated:

--$3.3 million class C to 'AAAsf' from 'BBBsf'; Outlook Stable;

--$22.3 million class D to 'BBsf' from 'CCCsf'; Outlook Stable assigned;

--$12.5 million class E to 'CCCsf' from 'CCsf'; RE 100%.

Fitch affirms the following classes and assigns REs as indicated:

--$15.3 million class F at 'Csf'; RE 70%.

--$11.1 million class G at 'Csf'; RE 0%;

--$10.3 million 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-1A, A-2, A-3, A-4 and B certificates have paid in full. Fitch does not rate the class Q and DA certificates. Fitch previously withdrew the ratings on the interest-only class XC and XP 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' (March 31, 2015);

--'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=864268

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=983516

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.

Fitch Ratings
Primary Analyst
Dustin Pike, +1-212-612-7875
Associate 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]

Source: Fitch Ratings

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