Fitch Downgrades 9, Affirms Super Senior, AM classes of ML-CFC 2006-1

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings downgrades nine classes and affirms five classes of ML-CFC Commercial Mortgage Trust, series 2006-1. A detailed list of rating actions follows at the end of this press release.

The downgrades reflect an increase in Fitch modeled losses mainly attributed to updated values on specially serviced loans. Fitch modeled losses of 10% of the remaining pool; expected losses on the original pool balance total 9.4%, including already realized losses of 3.4%. The Negative Outlooks reflect the continued downward momentum of appraisals for specially serviced loans and occupancy issues at some of the larger properties.

As of the September 2012 distribution date, the pool's aggregate principal balance has decreased 38.2% to $1.32 billion from $2.14 billion at issuance. Fitch has designated 25 loans (23.6%) as Fitch Loans of Concern, including seven (13.1%) specially serviced loans. Cumulative interest shortfalls in the amount of $6.2 million are affecting classes K through Q.

The largest contributor to modeled losses (4.2% of the pool) consists of a portfolio of five medical office buildings and one surgical center totaling 323,013 square feet (sf) located in Texas, Arizona and Missouri. Servicer-reported year-end (YE) 2011 debt service coverage ratio (DSCR) declined to 0.54x from 1.53x at YE2010. The decline in performance is primarily due to decreased occupancy at the medical offices and reduced revenue at the surgical center. In addition, the loan started to amortize in March 2011 which also affected the cash flow. As of the August 2012 rent roll, the portfolio was 78.5% occupied, compared to 81.3% at YE2011.

The second largest contributor to modeled losses (2.2%) consists of two office properties totaling 323,526 sf located in suburban Atlanta, GA. The portfolio has been underperforming since YE2009 due to the loss of several large tenants at lease expirations. The servicer-reported YE2011 portfolio DSCR was 0.68x with 71% occupancy rate, compared to a DSCR of 1.21x with 75% occupancy rate at issuance.

The third largest contributor to modeled losses (3%) is a 394,578 sf office building located in Hyattsville, MD. The property is 99.5% occupied by a GSA tenant. Loan was transferred to special servicing in March 2012 due to the borrower's failure to fund a reserve following the non-renewal of the GSA tenant that expired in September 2012. The loan was modified in February 2012 and returned to the master servicer in June 2012. The GSA tenant has negotiated a new three-year lease which is being finalized. The servicer-reported second quarter 2012 DSCR was 0.9x, compared to a DSCR of 1.14x at YE2011.

Fitch downgrades and revises Rating Outlooks and Recovery Estimates (RE) to the following classes:

--$82.1 million class A-J to 'BBB-sf' from 'Asf'; Outlook to Negative from Stable;

--$100 million class AN-FL to 'BBB-sf' from 'Asf'; Outlook to Negative from Stable;

--$50.9 million class B to 'CCCsf' from 'BBsf'; RE70%;

--$21.4 million class C to 'CCCsf' from 'Bsf'; RE0%;

--$29.5 million class D to 'CCsf' from 'CCCsf'; RE 0%';

--$16.1 million class E to 'CCsf' from 'CCCsf'; RE 0%';

--$24.1 million class F to 'Csf'from 'CCsf';RE0%;

--$9.6 million class H to 'Dsf' from 'Csf'; RE 0%;

--$0 million class J to 'Dsf' from 'Csf'; RE0%.

Fitch also affirms the following classes:

--$64 million class A-SB at 'AAAsf'; Outlook Stable;

--$489.5 million class A-4 at 'AAAsf'; Outlook Stable;

--$211.6 million class A-1A at 'AAAsf'; Outlook Stable;

--$214.2 million class A-M at 'AAAsf'; Outlook Stable;

--$16.1 million class G at 'Csf'; RE0%.

Classes K,L,M,N and P are affirmed at 'Dsf'; RE0%, as the classes have been reduced to zero due to losses. Class A-1, A-2, A-3, A-3FL, A-3B have paid in full. Fitch does not rate the zero balance class Q. Fitch has withdrawn the rating on the Interest-only class X.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (June 6, 2012);

--'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Dec. 21, 2011).

Applicable Criteria and Related Research:

Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=662869

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

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Fitch Ratings
Primary Analyst
Amy Gan, [phone]
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Mary MacNeill, [phone]
Managing Director
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Media Relations:
Brian Bertsch, [phone]
Email: [e-mail]

Source: Fitch Ratings