Fitch Upgrades Five Classes of Bear Stearns 2006-TOP22

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has upgraded five classes of Bear Stearns Commercial Mortgage Securities Trust (BSCMST), series 2006-TOP22 commercial mortgage pass-through certificates. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The upgrades of BSCMST, series 2006-TOP22 reflect the high credit enhancement of the senior classes as a result of principal pay down as well as the low leverage of the remaining non-specially serviced loans. Despite high credit enhancement further upgrades were limited due to adverse selection of the pool's remaining 17 non-defeased loans and the asset concentration risk associated with 52.2% of the pool collateralized by retail properties.

There were variances to criteria related to classes D, E, and F whereby the surveillance criteria indicated further rating upgrades were possible. However, Fitch limited upgrades due to the concentration risks and potential binary risk.

The pool's aggregate principal balance has been paid down by 92.1% to $134.7 million from $1.7 billion at issuance. Fitch modeled losses of 18.0% of the remaining pool; expected losses on the original pool balance are 2.9%, of which 1.5% are realized losses to date. Of the original 151 loans, 21 remain, and five have been designated (29.1%) as Fitch Loans of Concern, including three specially serviced loans (89.7%). Four loans (17.6%) are fully defeased. The non-specially serviced loans' maturity dates are in 2018 (11.7%), 2019 (3.3%), 2020 (44.7%), 2021 (27.8%), 2026 (2.1%), and 2029 (0.7%). Seven loans are currently on the servicer watchlist (31.0%).

The largest loan in the pool and the largest contributor to Fitch's modeled losses is Sunrise Plaza (13.9%), an 119,180 square foot (sf) anchored retail center located in San Jose, CA. As of March 2016, the property was 99% occupied with a debt service coverage ratio (DSCR) of 1.34x. The property's largest tenant, Sports Authority (35% of the net rentable area [NRA]), filed for Chapter 11 Bankruptcy in early 2016, and as a result, is expected to vacate the property by August 2016. According to the master servicer, the sponsor is currently marketing the space and has had preliminary discussions with a number of retailers on backfilling the 41,176-sf space. Fitch applied a stressed valuation for the analysis based on the vacant anchor space. Fitch will continue to monitor the loan for progress on securing a new tenant.

The second largest contributor to Fitch's modeled losses is the real estate owned (REO) Gateway Business Center (6.49%), a 117,500 square foot (sf) suburban office building located in Melbourne, FL. The property has experienced cash flow issues due to occupancy declines, falling to 53% as of Feb. 2016, compared to 94% at issuance. In addition, leases for approximately 47% of the NRA are scheduled to expire over the next 12 months. The special servicer is currently working to extend the in-place leases and secure additional tenants to increase the building's occupancy. Upon completion of the leasing activity, the special servicer will determine a disposition strategy.

The third largest contributor to Fitch's modeled losses is 2420 - 2452 East Springs Drive (5.3% of the pool), a 69,292 sf neighborhood retail center located in Madison, WI. The subject was built in 1996 and is located in a commercial corridor that is seven miles northeast of the capitol. The property has been 100% leased by two tenants, Office Max (34%) and Best Buy (66%), since issuance. Office Max vacated the property in November 2015, but continues to remit rental payments and has a lease expiration date of June 2017. According to the servicer, the sponsor is actively marketing the vacated space and the loan is being cash managed by the servicer with additional tenant improvement and leasing reserves being collected to offset leasing activities. As of March 2016, the property's occupancy was 66% with a DSCR of 1.25x. The partial interest-only loan is current and scheduled to mature in February 2018.

RATING SENSITIVITIES

Fitch's loss assumptions assumed a stressed value on the specially serviced loans and Fitch Loans of Concern. The ratings of classes B through E are expected to remain stable due to sufficient credit enhancement, defeasance, and continued amortization. The rating on the distressed classes (below B-) may be impacted by the disposition of the specially serviced assets. Additional upgrades are possible should tenancy stabilize on the larger assets or realized losses be less than anticipated as loans resolve or payoff. Downgrades could occur if losses are greater than expected from the specially serviced loan, pool performance deteriorates, or loans default at maturity.

DUE DILIGENCE USAGE

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

Fitch has upgraded the following classes:

--$28.3 million class B to 'AAAsf' from 'Asf'; Outlook Stable;

--$12.8 million class C to 'AAAsf' from 'BBBsf'; Outlook Stable;

--$25.6 million class D to 'BBBsf' from 'BBsf'; Outlook Stable;

--$14.9 million class E to 'BBsf' from 'Bsf'; Outlook Stable;

--$14.9 million class F to 'Bsf' from 'CCCsf'; Assigned Outlook Stable;

--$14.9 million class G to 'CCCsf' from 'CCsf'; RE100% from RE0%.

Fitch has affirmed the following classes:

--$8.5 million class H at 'CCsf'; RE10% from RE0%;

--$10.7 million class J at 'Csf'; RE0%;

--$2.1 million class K at 'Csf'; RE0%;

--$2.0 million class L at 'Dsf'; RE0%;

--$0 million class M at 'Dsf'; RE0%;

--$0 million class N at 'Dsf'; RE0%;

--$0 million class O at 'Dsf'; RE0%.

Fitch does not rate the $0.0 million class P. Classes A-1, A-2, A-3, A-AB, A-4, A-1A, A-M, and A-J have repaid in full. Classes M through O and the unrated class P have been reduced to zero due to losses realized on loans liquidated from the trust. Fitch previously withdrew the rating on the interest-only class X.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

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=1010039

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010039

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/20160805005625/en/

Fitch Ratings
Primary Analyst
Jay Bullie, CFA
Associate Director
+1-312-368-2079
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]
Hannah James, New York, + 1 646-582-4947
Email: [email protected]

Source: Fitch Ratings

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