According to Fitch, the downgrades of classes AM through D are due to ongoing concerns and increased loss expectations on the specially serviced loans, primarily the Atrium Hotel Portfolio loan. This loan, which covers 12.6% of the pool, is the largest loan in the certificate class.
This loan is secured by a portfolio of six full-service hotels, including five Embassy Suites (Raleigh, N.C., Portland, Ore., Charleston, W.V., Seaside, Calif., and Tampa), as well as a Capital Plaza Hotel in Topeka, Kan. The loan transferred to special servicing in May for imminent default after the borrower notified the master servicer of significant upcoming capital improvement needs with limited available reserves.
The five franchise agreements on the five Embassy Suites are scheduled to expire between 2015 through 2018. As of the September 2013 payment date, the loan remains current. However, only two of the six hotels report net operating income debt service coverage ratios above 1.0x.
Overall, for the entire certificate series, Fitch expects losses on the original pool balance to total 15.8%, including $80.7 million (3.3% of the original pool balance) in realized losses to date. Fitch has designated 67 loans (49.2%) as Fitch loans of concern, which includes 18 specially serviced assets.
As of the September 2013 distribution date, the pool’s aggregate principal balance has been reduced by 20.9% to $1.92 billion from $2.43 billion at issuance. Per the servicer reporting, two loans are defeased.
Meanwhile, classes AM through J were placed on rating watch negative upon notification of the loan being transferred to special servicing in May, Fitch stated. Additionally, class H has been downgraded to “D” due to incurred losses.