CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded nine classes of Banc of America Commercial Mortgage Inc., series 2006-3 commercial mortgage pass-through certificates, due to further deterioration in performance including increased loss expectations on specially serviced loans. A detailed listing of rating actions follows at the end of this release.

Fitch modeled losses of 8.6% (13.6% cumulative transaction losses which includes losses realized to date). Modeled losses include expected losses on loans in special servicing and on performing loans with declines in performance indicative of a higher probability of default.

The increase in modeled losses as well as the largest contributor to modeled losses is the Rushmore Mall(5.8% of the pool). The loan transferred to special servicing following Fitch's last rating action and the special servicer has recently obtained a valuation significantly below its debt. The interest-only loan is secured by a 737,725 square foot (sf) regional mall located in Rapid City, SD, slightly north of the CBD and approximately seven miles from the Ellsworth Airforce Base. Built in 1978 and renovated in 1993, the mall is anchored by Sears (124,215 sf) and JC Penney (89,909 sf). The mall has 421,948 sf of in-line space. The sponsors are Simon Property Group and The Macerich Group.

JC Penny has indicated that it will relocate unless the borrower constructs a new, 104,000 square foot store at the property for them to occupy. The borrower has indicated that it is not willing to invest in the property to construct the new space without a loan modification. Given the potential of the borrower and the special servicer failing to come to an agreement on a modification, Fitch modeled significant losses. The loan currently has positive cash flow, but the dispute could have a large impact on the mall's performance.

The second largest contributor to losses is the Phoenix Airport Marriott loan (3.8%) which is secured by a 345-room hotel located 1.5 miles from the Phoenix International Airport. At issuance, the property reported an average daily occupancy of 68.1%, and revenue per available room (RevPar) of $94.32. According to the Smith Travel Research for the trailing 12 months (TTM) ended February 2011, occupancy and RevPAR were 53.8% and $71.35 respectively. While this represents a 14.4% increase in TTM RevPAR, the property is still significantly underperforming issuance expectations. The servicer-reported year end (YE) 2010 net operating income debt service coverage ratio (NOI DSCR) was 0.80 times (x), compared with 1.62x at issuance.

Recent losses to the trust were primarily the result of the disposition of six former Boscov's properties. Total losses on the disposition were approximately 115% of the loan amount as fees and advances consumed all of the sales proceeds. There were originally eight single-tenant retail assets in the pool, with total principal balance of $131.5 million (6.8%). Boscov's Inc. was the borrower and tenant. The stores were closed after Boscov's filed Chapter 11 bankruptcy on Aug. 4, 2008. The properties are attached to shopping centers, four of which are owned by Simon Properties Group, Inc., two by General Growth Properties and one by CBL & Associates Properties, Inc.

As of the November 2011 distribution date, the pool's aggregate principal balance decreased by 17.1% to $1.63 billion from $1.96 billion at issuance. Fitch has identified 35 loans (38.4%) as Fitch Loans of Concern, which includes seven specially serviced loans (8.6%). There are no defeased loans in the pool.

Class A-M has been assigned a Negative Rating Outlook reflecting several sub-performing loans which remain current, as well as a significant exposure to properties in tertiary markets.

Fitch has downgraded the following classes:

--$196.5 million class A-M to 'AAsf' from 'AAAsf', Outlook to Negative from Stable;

--$152.3 million class A-J to 'CCCsf' from 'BBsf', RE 100%;

--$41.8 million class B to 'CCsf' from 'CCCsf', RE 100%;

--$19.7 million class C to 'Csf', RE 30% from 'CCCsf', RE 100%;

--$31.9 million class D to 'Csf', RE 0% from 'CCCsf', RE 45%;

--$17.2 million class E to 'Csf' from 'CCsf', RE 0%;;

--$22.1 million class F to 'Dsf' from 'CCsf', RE 0%;

--$17.2 million class G to 'Dsf' from 'Csf', RE 0%;

--$22.1 million class H to 'Dsf' from 'Csf', RE 0%.

Fitch has affirmed the following classes:

--$56.9 million class A-3 at 'AAAsf', Outlook Stable;

--$1.01 billion class A-4 at 'AAAsf', Outlook Stable;

--$97.8 million class A-1A at 'AAAsf', Outlook Stable.

Classes J, K, L and M have been reduced to zero due to realized losses and remain at 'Dsf', RE 0%. Classes A-1 and A-2 have paid in full. Fitch does not rate classes N, O or P.

Fitch withdrew the ratings of the interest only class XW. (For additional information, see 'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities', dated June 23, 2010.)

Additional information on Fitch's amended criteria for analyzing U.S. fixed rate CMBS is available in the Nov. 16, 2011 report, 'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions,' which is available at 'www.fitchratings.com' under the following headers:

Structured Finance >> CMBS >> Criteria Reports

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' (Aug. 4, 2011);

--'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Nov. 16, 2011).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656660

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