Fitch Downgrades 16 Classes of MSCI 2005-HQ6; Assigns Outlooks and LS Ratings

Fitch Ratings takes various rating actions on Morgan Stanley Capital I Inc. Series 2005-HQ6, commercial mortgage pass-through certificates.

A detailed list of rating actions follows at the end of this release.

The downgrades are the result of loss expectations and reflect Fitch's prospective views regarding commercial real estate market value and cash flow declines. Fitch forecasts potential losses of 5.4 percent for this transaction, should market conditions not recover. Today's rating actions are based on the full losses of 5.4 percent as a majority of loans mature in the next five years. The bonds with Negative Outlooks indicate classes that may be downgraded in the future.

To determine potential defaults for each loan, Fitch assumed cash flow would decline by 10 percent from year-end 2008. That is consistent with the analysis used in its review of recent vintage transactions whereby cash flow was assumed to decline 10 percent from year-end 2008 projected over a three-year period. If the stressed cash flow would cause the loan to fall below 0.95 times (x) debt service coverage ratio (DSCR), Fitch assumed the loan would default during the term. To determine losses, Fitch used the above stressed cash flow and applied a market cap rate by property type, ranging between 7.5 percent and 10 percent, to derive a value. If the loan balance at default is less than Fitch's derived value, the loan would realize that amount of loss. These loss estimates were reviewed in more detail for loans representing 70 percent of the pool and, in certain cases, revised based on additional information and/or property characteristics. Loss expectations attributed to loans reviewed in detail represent approximately 87 percent of the 5.4 percent.

Approximately 23 percent of the mortgages mature within the next five years as follows: 18.2 percent in 2010, 1.9 percent in 2012 and 2.9 percent in 2014. 72.2 percent of the loans mature in 2015.

Fitch identified 52 Loans of Concern (32 percent) within the pool, 10 of which (9.6 percent) are specially serviced. Of the specially serviced loans, three (7.1 percent) are current. Three of the Fitch Loans of Concern (17.9 percent) are within the transaction's top 15 loans, and two (6.5 percent) are specially serviced.

None of the Loans of Concern within the top 15 loans are assumed to default during the term. Fitch expects that each of the top 15 loans may default at maturity based on an insufficient accrued equity position as calculated in Fitch's refinance test. A loan would pass the refinance test if the stressed cash flow would achieve a 1.25x DSCR as calculated based on a 30-year amortization schedule and an 8 percent coupon.

The largest contributors to loss are as follows: Lincoln Square Retail (11.3 percent), 1500 Broadway (10.9 percent), and Arrowhead Crossing (1.8 percent).

The interest-only Lincoln Square Retail loan is collateralized by four retail properties totaling 503,178 sf located along Broadway, between 66th and 68th streets on the Upper West Side of Manhattan. An extended stay hotel which was originally part of the collateral was defeased for 100 percent of the allocated loan amount in August 2008. Loan is considered a Fitch Loan of Concern due to declining performance as a result of increased vacancy. As of second quarter-2009 (2Q'09) occupancy and DSCR were 94 percent and 1.07x compared to 100 percent and 1.38x at issuance. Additionally the loss of revenues from the hotel has negatively affected performance. Major tenants include Loews Lincoln Center (30 percent of NRA, lease expires in 2014), Rebok Sports Club (28 percent, 2015) and Barnes & Noble (12 percent, 2011). There are no leases expiring in 2010 and Barnes and Noble is the only expiration in 2011.

The interest-only 1500 Broadway loan is collateralized by a 513,563 sf office property located in Midtown, Manhattan. The property was constructed in 1972 and is located in the heart of Times Square on Broadway between 43rd and 44th streets. It is well known as home to the Good Morning America Show. Major tenants include Times Square Studios (16 percent NRA, expiring in 2019), NASDAQ (11 percent, 2024) and Video Monitoring Services of America (6 percent, 2016). As of 3Q'09 occupancy had declined to 81.2 percent from 95 percent at issuance. The decline is due to the second largest tenant (12 percent) vacating the property at lease expiration on Sept. 30. As of 2Q'09 DSCR was 1.54x compared to issuance underwriting of 1.30x; this, however, does not account for the recent vacancy.

The interest-only Arrowhead Crossing loan is collateralized by a 346,428 sf anchored retail center located in Peoria, AZ. The center was constructed in 1996. Major tenants include DSW Shoe Warehouse (10 percent of NRA, expiring 2011), Homegoods (9 percent, 2013), TJ Maxx (9 percent, 2011) and Barnes & Noble (9 percent, 2011). Approximately 25 percent of the NRA expires in 2010 and 32 percent in 2011. Property performance has declined since issuance. The two largest tenants at the property Circuit City and Linens N' Things both filed for bankruptcy and closed their stores. The spaces have yet to re-leased. As of 2Q'09 the property was 72 percent occupied compared to 99 percent at issuance. DSCR has declined to 1.26x compared to 1.57x underwritten at issuance.

Fitch has downgraded, removed from Rating Watch Negative, and assigned Rating Outlooks and Loss Severity (LS) ratings to the following classes:

--$175.6 million class A-J to 'AA/LS3' from 'AAA'; Outlook Stable;

--$24.1 million class B to 'AA/LS5' from 'AA+'; Outlook Stable;

--$34.4 million class C to 'A/LS5' from 'AA'; Outlook Stable;

--$27.5 million class D to 'BBB/LS5' from 'AA-'; Outlook Stable;

--$24.1 million class E to 'BBB/LS5' from 'A+'; Outlook Stable;

--$27.5 million class F to 'BB/LS5' from 'A'; Outlook Stable;

--$27.5 million class G to 'BB/LS5' from 'A-'; Outlook Stable;

--$34.4 million class H to 'B/LS5' from 'BBB+'; Outlook Negative;

--$31 million class J to 'B-/LS5' from 'BBB'; Outlook Negative;

--$41.3 million class K to 'B-/LS5' from 'BBB-'; Outlook Negative;

--$10.3 million class L to 'B-/LS5' from 'BB+'; Outlook Negative;

--$10.3 million class M to 'B-/LS5' from 'BB'; Outlook Negative;

--$17.2 million class N to 'B-/LS5' from 'BB-'; Outlook Negative;

--$3.4 million class O to 'B-/LS5' from 'B+'; Outlook Negative;

--$10.3 million class P to 'B-/LS5' from 'B'; Outlook Negative;

--$10.3 million class Q to 'CCC/RR6' from 'B-'.

Fitch also has affirmed the following classes and assigned LS ratings as indicated:

--$52.1 million class A-1 at 'AAA/LS2'; Outlook Stable;

--$315.5 million class A-1A at 'AAA/LS2'; Outlook Stable;

--$294.9 million class A-2A at 'AAA/LS2'; Outlook Stable;

--$42.1 million class A-2B at 'AAA/LS2'; Outlook Stable;

--$103 million class A-3 at 'AAA/LS2'; Outlook Stable;

--$111.1 million class A-AB at 'AAA/LS2'; Outlook Stable;

--$1,060.6 million class A-4A at 'AAA/LS2'; Outlook Stable;

--$151.5 million class A-4B at 'AAA/LS2'; Outlook Stable;

--Interest-only classes X-1 and X-2 at 'AAA'; Outlook Stable.

Fitch does not rate the $41.3 million class S.

Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 8, report, 'Surveillance Methodology for Recent Vintage U.S. CMBS' is available at 'fitchratings.com' under the following headers:

Structured Finance then CMBS then Criteria Reports

Fitch will release a report titled 'Morgan Stanley Capital I Inc. Series 2005-HQ6' that will contain a graph of revised loss expectations for the transaction at 'fitchratings.com'.

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