Fitch Affirms All Classes of RAIT CRE CDO I

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms 11 classes of RAIT CRE CDO I Ltd. (RAIT CRE CDO I). A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Since the last rating action, senior classes A-1A and A-1B have received $55.7 million in paydown from the removal of approximately 11 loan interests and scheduled amortization. While recoveries were higher than expected on these assets and realized losses were de minimis, many of the remaining assets are significantly overleveraged with high losses modeled.

Interests from approximately 90 different assets are contributed to the CDO. Since the revolving period ended in November 2011, only 17% of the collateral has been repaid or otherwise resolved. The current percentage of defaulted assets and loans of concern is 1.7% and 67.1%, respectively. Many of the remaining loans have been modified, including maturity extensions, since origination. Further, RAIT affiliates now have ownership interests in over 30 of the CDO assets, totaling approximately $500 million (59%).

As of the June 2015 trustee report, and per Fitch categorization, the CDO is substantially invested as follows: whole loans/A-notes (73%), B-notes (0.7%), mezzanine debt (18.1%), and preferred equity (8.3%). Fitch expects significant losses upon default for many of the loan positions as they are significantly over-leveraged. All over-collateralization and interest coverage tests were in compliance.

Fitch's base case loss expectation is 50.5%. Under Fitch's methodology, approximately 90.1% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. In this scenario, the modeled average cash flow decline is 6% from, generally, YE 2014 or trailing 12 months first quarter 2015 (T12 1Q15). Modeled recoveries are average at 44%.

The largest contributor to Fitch's base case loss expectation is a preferred equity position (3.9% of the pool) on an office complex located in Boca Raton, FL. After a period of vacancy, the property was 100% leased to a new tenant in 2011. However, the property remains overleveraged, and Fitch modeled a substantial loss in its base case scenario on this position.

The next largest component of Fitch's base case loss expectation is a whole loan (3.6%) secured by a poorly performing regional mall located in South Carolina. Cash flow does not support debt service. Fitch modeled a substantial loss in its base case scenario on this loan.

This transaction was analyzed according to the 'Surveillance Criteria for U.S. CREL CDOs', which applies stresses to property cash flows and debt service coverage ratio tests to project future default levels for the underlying portfolio. Recoveries are based on stressed cash flows and Fitch's long-term capitalization rates. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various defaults timing and interest rate stress scenarios as described in the report 'Global Rating Criteria for Structured Finance CDOs'. The breakeven rates for classes A-1 through A-2 generally pass the cash flow model at or above the ratings listed below.

The 'CCC' and below ratings for classes B through J are based on a deterministic analysis that considers Fitch's base case loss expectation for the pool and the current percentage of defaulted assets and Fitch Loans of Concern, factoring in anticipated recoveries relative to each class's credit enhancement.

RAIT CRE CDO I is managed by RAIT Partnership, L.P.

RATING SENSITIVITIES

The Negative Outlooks for classes A-1 through A-2 reflect the potential for further negative credit migration of the underlying collateral. The junior classes are subject to further downgrade should realized losses begin to increase.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch affirms the following classes as indicated:

--$137.2 million class A-1A notes at 'BBsf'; Outlook Negative;

--$188.6 million class A-1B notes at 'BBsf'; Outlook Negative;

--$90 million class A-2 notes at 'Bsf'; Outlook Negative;

--$110 million class B notes at 'CCCsf'; RE 0%;

--$41.5 million class C notes at 'CCCsf'; RE 0%;

--$22.5 million class D notes at 'CCCsf'; RE 0%;

--$16 million class E notes at 'CCsf'; RE 0%;

--$500,000 class F notes at 'CCsf'; RE 0%;

--$12.5 million class G notes at 'CCsf'; RE 0%.

--$17.5 million class H notes at 'CCsf'; RE 0%;

--$35 million class J notes at 'CCsf'; RE 0%.

Fitch does not rate class PS (the preferred shares).

Additional information is available at www.fitchratings.com.

Applicable Criteria

Global Rating Criteria for Structured Finance CDOs (pub. 16 Jul 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Surveillance Criteria for U.S. CREL CDOs (pub. 24 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=811268

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987601

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987601

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150708006137/en/

Fitch Ratings
Primary Analyst
Stacey McGovern
Director
+1-212-908-0722
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Christopher Bushart
Senior Director
+1-212-908-0606
or
Media Relations
Sandro Scenga, +1 212-908-0278,
[email protected]

Source: Fitch Ratings

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