Fitch Affirms FMC 2005-1

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed all rated classes of FMC Real Estate CDO 2005-1 Ltd. (FMC 2005-1). A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The portfolio is very concentrated with only seven assets remaining. Approximately 85% of the pool consists of defaulted and Real Estate Owned (REO) assets with only one performing loan (15.4%) remaining in the transaction. Fitch's base case loss expectation, which incorporates prospective views regarding commercial real estate market values and the most recent cash flows available, is 43.7%.

Since Fitch's last rating action, class C was paid in full and class D received $23.0 million in paydown from the discounted disposal of two assets. Realized losses since last review total $18.4 million. The CDO is under collateralized by $9.3 million.

As only one performing asset remains in the pool, Fitch is concerned about the CDO's ability to continue to make timely interest payments to class D, the senior most class. The pari passu A-note secured by an interest in a Detroit area office property is expected to be disposed within the next month, leaving no incoming monthly interest proceeds available to pay interest on the notes. However, the affirmation at 'Bsf' reflects Fitch's expectation that the CDO's asset manager will continue to manage the portfolio to allow for sufficient funds to be available to pay the timely interest obligation on class D until the class is paid off in full. Two of the REO assets are expected to resolve in the next two to three months with principal proceeds sufficient to pay any remaining balance on class D.

Under Fitch's methodology, 100% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. Modeled recoveries are approximately 56.3%.

The largest contributor to Fitch's base case loss expectation is a junior equity position in an REO asset (16.5%) that is a 1.3 million-square foot (sf) regional mall located in Bloomingdale, IL. Fitch modeled a full loss on the CDO position as the asset manager has fully written down the asset's value to $0.

The next largest contributor to Fitch's base case loss expectation is an REO asset (11.9%) consisting of a 162-acre residential development site located in Madera County, CA. Development plans stalled and the asset became REO in March 2013. Fitch modeled a significant loss.

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. Cash flow modeling was not performed, as no material impact from the analysis was anticipated.

Based on the heavily concentrated portfolio and small percentage of performing assets, the ratings for classes E and F are based on a deterministic analysis. This analysis considers the CDO's ability to make interest payments to the classes as well as the current percentage of defaulted assets and Fitch Loans of Concern and factoring in anticipated recoveries relative to each class' credit enhancement.

FMC 2005-1 is a commercial real estate (CRE) CDO managed by SCFFI GP LLC, an affiliate of Five Mile Capital.

RATING SENSITIVITIES

The Negative Outlook on class D reflects the high concentration of defaulted assets and the potential for missed timely interest payments. All distressed classes are subject to further downgrade should additional losses be realized.

DUE DILIGENCE USAGE

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

Fitch has affirmed the following ratings:

--$11 million class D at 'Bsf'; Outlook Negative;

--$13.2 million class E at 'CCCsf'; RE 100%;

--$22 million class F at 'CCCsf'; RE 30%

The class A-1, A-2, B and C notes have paid in full. Fitch previously withdrew the ratings of classes G and H following the surrender and cancellation of those certificates.

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. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

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

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985884

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/20150604006211/en/

Fitch Ratings, Inc.
Tiffany Pierce
Associate Director
+1-212-908-9107
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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