Fitch Affirms Cobalt 2006-C1

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed all classes of Cobalt CMBS Commercial Mortgage Trust series 2006-C1. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations reflect sufficient credit enhancement (CE) relative to Fitch-modeled loss expectations for the pool. Although CE for class A-M has improved since Fitch's last rating action, the transaction has become more concentrated with 82 loans remaining (38.9% of which are interest only loans), compared to 169 at issuance. The remaining pool faces significant refinance risk with 93.5% maturing or having an Anticipated Repayment Date (ARD) in 2016 (ARD loans represent 10.3% of the pool). Loan maturities are concentrated in the third and fourth quarters of 2016 (91.7%). Some loans might experience challenges securing refinance due to performance issues or tenants lease rollovers, especially the loans with a Fitch debt service coverage ratio (DSCR) falling below 1.25x.

Fitch modeled losses of 11.1% for the remaining pool; expected losses on the original pool balance total 18.3%, including $364.7 million in realized losses to date. Fitch has designated 22 loans (28.6%) as Fitch Loans of Concern, which includes eight specially serviced assets (7.8%).

As of the July 2016 distribution date, the pool's aggregate principal balance (including rakes) has been reduced by 65% to $894.7 million from $2.56 billion at issuance. Thirteen loans (17.6%) are defeased. Interest shortfalls totaling $5.5 million are currently affecting class AJ. Classes G through P have outstanding cumulative interest shortfalls, but have been fully written down.

The largest contributor to modeled losses is an interest-only (IO) loan (4%) secured by a 296,308 square foot (sf) Class A office building located in Bloomington, MN. The loan was modified and restructured into an A/B notes split effective November 2012. The property performance has improved since Fitch's last rating action. The servicer-reported first quarter (1Q) 2016 debt service coverage ratio (DSCR) was 1.99x, compared to 1.44x at year end (YE) 2015, 1.37x at YE 2014, and 0.78x at YE 2013. However, the recent DSCR reflects the A note balance only. Fitch does not expect recoveries on the B note and has modeled a loss on the A note. Per March 2016 rent roll, the property was 86.7% occupied, compared to 86.6% at last review. The loan matures in October 2016.

The second largest contributor to modeled losses is an IO loan (4.5%) secured by a 336-unit multifamily property located in Glendale, AZ. As Arizona State University's (ASU) West Campus is located within close proximity of the subject, a significant portion of the residents at the property are students of ASU. The servicer reported 1Q 2016 DSCR was 1.2x, compared to 1.24x at YE 2015, 1.1x at YE 2014, and 1.03x at YE 2013. As of March 31, 2016, the property was 97.3% occupied. The loan matures in October 2016.

The third largest contributor to modeled losses (1.7%) is a real estate owned (REO) full-service hotel with 187 rooms. The property is located in Leominster, MA. The hotel was converted to a Double Tree effective September 2013. As of trailing 12 month (TTM) March 2016, occupancy, ADR, and revenue per available room (RevPar) was 68%, $118.41, $80.53, respectively, compared to 61.2%, $113.07, and $69.19 respectively, a year ago. The property manager is completing the property-improvement plan (PIP) to stabilize the hotel under the new brand.

RATING SENSITIVITIES

Fitch conducted a sensitivity analysis to evaluate the impact on the outstanding ratings in the event the pool becomes highly concentrated with defaulted loans due to adverse selection as performing loans pay off. The Negative Outlooks on class A-M indicate that the 'BB' rated class may be subject to future downgrades should pool performance deteriorate and losses exceed expectations. The ratings of classes A-4 and A-1A remain stable as increased loss expectations are unlikely to affect these classes. Fitch will review this transaction again in six months to assess the performance of the transaction after loan maturities.

DUE DILIGENCE USAGE

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

Fitch has affirmed the following ratings:

--$327.9 million class A-4 at 'AAAsf'; Outlook Stable;

--$172.2 million class A-1A at 'AAAsf'; Outlook Stable;

--$253.1 million class A-M at 'BBsf'; Outlook Negative;

--$141.5million class A-J at 'Dsf'; RE 0%;

--$0 class B at 'Dsf'; RE 0%;

--$0 class C at 'Dsf'; RE 0%;

--$0 class D at 'Dsf'; RE 0%;

--$0 class E at 'Dsf'; RE 0%;

--$0 class F at 'Dsf'; RE 0%;

--$0 class G at 'Dsf'; RE 0%;

--$0 class H at 'Dsf'; RE 0%;

--$0 class J at 'Dsf'; RE 0%;

--$0 class K at 'Dsf'; RE 0%;

--$0 class L at 'Dsf'; RE 0%;

--$0 class M at 'Dsf'; RE 0%;

--$0 class N at 'Dsf'; RE 0%;

--$0 class O at 'Dsf'; RE 0%.

The classes A-1, A-2, A-AB, A-3, AMP-E1 and AMP-E2 have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the rating on the interest-only class IO certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884964

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009255

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009255

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/20160721006358/en/

Fitch Ratings
Primary Analyst
Amy Gan
Director
+1-212-908-9143
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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