DBRS Downgrades Two Classes and Confirms Eight Classes in Merrill Lynch Mortgage Trust 2005-CIP1

DBRS, Inc. (DBRS) has today confirmed the following classes of Merrill Lynch Mortgage Trust 2005-CIP1:

-- Classes XC, A-3A, A-3B and A-4 at AAA (sf)
-- Class A-J at BBB (sf)
-- Class B at BB (high) (sf)
-- Class C at BB (low) (sf)
-- Class E at C (sf)

In addition, DBRS has also downgraded Class A-M to A (high) (sf) from AA (sf) and Class D to CCC (sf) from B (low) (sf). Trends on Classes XC through Class C are stable.

The rationale for the downgrade of Class D is the increase in projected losses, as three loans, representing 5.1% of the current pool balance, have transferred to special servicing in the last 12 months. The largest of these is Residence Inn Hotel Portfolio 1 (Prospectus ID#6, 4.2% of the current pool balance). This loan is secured by four extended-stay hotels: two in Texas, one in New York and one in Florida. The transfer due to imminent default occurred in February 2014, and the assets became real estate owned in May 2014. A receiver has since re-flagged the hotels under the Hawthorn Suites by Wyndham brand, and the current combined value of the properties is reported to be $24.6 million as of May 2014, down from $67.0 million at issuance.

The rationale for the downgrade of Class A-M is substantiated by the increased likelihood for Class A-M to be shorted interest in relation to Appraisal Subordination Entitlement Reduction and special servicing fees, given the recent transfer and value decline of Residence Inn Hotel Portfolio 1, combined with corrected mortgage loan fee expected repayment of the largest loan in the pool, Glenbrook Square Mall (Prospectus ID#1, 14.2% of the current pool balance). Although Glenbrook Square Mall has since been returned to the master servicer and continues to perform, the loan will be subject to a special servicing fee of at least 1.0% upon disposition from the trust. Based on interest payments made in the January 2015 remittance, DBRS expects that this event alone, coupled with the current interest shortfalls within the capital stack, would cause interest to be shorted from the Class A-M bondholders. DBRS does not have any tolerance for unpaid interest to classes rated in the AAA (sf) to AA (low) (sf) range.

Loans not on the servicer’s watchlist nor in special servicing continue to perform as expected. The pool has so far experienced 47.1% in collateral reduction since securitization. There are 97 loans, representing 82.3% of the current pool balance, scheduled to mature by YE2015. These loans have a weighted-average debt-service-coverage-ratio of 1.21x and a weighted-average debt yield of 10.1%. Although the metrics of the current maturity profile are not necessarily overly strong on a weighted average, the pool has seen five loans fully repay and ten loans fully defease in the last 12 months.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool, the loans in special servicing and the loans on the servicer’s watchlist. The February 2015 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

Notes:
All figures are in U.S. Dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.