Fitch Takes Various Rating Actions on 19 CRE CDOs

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: CRE CDO BULK REVIEW 2

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881701

Fitch Ratings has upgraded 11 classes and affirmed 130 classes from 19 commercial real estate collateralized debt obligations (CRE CDOs) with exposure to commercial mortgage backed securities (CMBS).

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Rating Criteria for Structured Finance CDOs'. Fitch analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities, and for concentrated portfolios with a limited number of performing obligors, conducted a look-through analysis of the underlying portfolio. None of the reviewed transactions have been analyzed within a cash flow model framework, as the effect of structural features and excess spread, or conversely, principal proceeds being used to pay CDO liabilities and hedge payments, was determined to be minimal in the context of these CDO ratings or the hedge has expired.

KEY RATING DRIVERS

The upgrades to classes D-FX and D-FL (pari passu) in LNR CDO 2002-1 Ltd are attributed to deleveraging of the capital structure. Since the last rating action, the notes have received $43 million in pay down and are now covered by collateral with a Fitch derived rating of 'AAA'. The notes are now able to withstand losses consistent with an 'AAA' rating according to Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis.

The upgrade to class A-1 in CT CDO IV Ltd is attributed to deleveraging of the capital structure. Since the last rating action, the notes have received $53.7 million in pay down and are now covered by collateral with a Fitch derived rating of 'A'. The notes are now able to withstand losses at a higher rating stress according to Fitch's SF PCM analysis compared to Fitch's previous review.

The upgrades to classes E-FL and E-FX in LNR CDO 2003-1, Ltd. and class A1 in Sorin Real Estate CDO I, Ltd./Corp. to 'BBBsf' are attributed to deleveraging of the capital structure. The transactions have received $51 million and $49.7 million, respectively, since the last rating action. The notes are now able to withstand losses at a higher rating stress according to Fitch's SF PCM analysis compared to Fitch's previous rating action.

The upgrades to class A-3FL in G-FORCE 2005-RR2 LLC and class I-MM in Newcastle CDO VI, Ltd/Corp. to 'BBsf' are attributed to deleveraging of the capital structure. The transactions have received $71.8 million and $26.3 million, respectively, since the last rating action. The notes are now able to withstand losses at a higher rating stress according to Fitch's SF PCM analysis compared to Fitch's previous rating action.

The upgrade to class A2 in Sorin Real Estate CDO I, Ltd./Corp. to 'Bsf' is attributed to deleveraging of the capital structure. The transaction has received $49.7 million, since the last rating action. The notes are now able to withstand losses at a higher rating stress according to Fitch's SF PCM analysis compared to Fitch's previous rating action.

One class has been upgraded and four classes have been affirmed at 'CCCsf', as the credit profiles of the underlying transactions have improved, the capital structures continue to delever, class credit enhancement (CE) is now comparable to the 'CCC' rating loss rate (RLR) by SF PCM, and/or the credit enhancement to the notes exceeds the percentage of collateral with interest shortfalls. In some instances where notes do not pass the 'CCC' PCM RLR hurdle, Fitch anticipates high recoveries for several underlying collateral assets despite distressed ratings due to a look-through analysis of the underlying loan collateral and/or based on Fitch's Recovery Rating, when available.

Additionally, one class has been upgraded and six affirmed at 'CCsf', indicating that default is probable. These classes did not pass the 'CCC' RLR in SF PCM and/or have a high exposure to distressed collateral. However, the CE of the notes exceeds the percentage of collateral experiencing full interest shortfalls.

For transactions where the percentage of collateral experiencing full interest shortfalls significantly exceeds the CE level of the most senior class of notes, Fitch did not use SF PCM, as the probability of default for all classes of notes can be evaluated without factoring potential further losses.

Fitch affirmed 88 classes at 'Csf' because 1) the CE levels of the notes are below the percentage of collateral experiencing interest shortfalls or otherwise anticipated to take a loss on the transaction or 2) because the notes are undercollateralized. In general, the CE levels are also significantly below the percentage of the collateral with a Fitch derived rating of 'CC' and below.

Fitch affirmed 15 classes at 'Dsf' because they are non-deferrable classes that have experienced interest payment shortfalls. Fitch affirmed 16 classes at 'Dsf' because the classes have experienced principal writedowns.

RATING SENSITIVITIES

Negative migration and defaults beyond those projected could lead to downgrades for the 12 transactions analyzed under the SF PCM. Upgrades to these transactions are possible if recoveries exceed expectations. The remaining seven transactions have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for classes to be downgraded to 'Dsf' if either they are non-deferrable classes that experience any interest payment shortfalls or are classes that experience principal writedowns.

The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 19 CRE CDO's', released and available at 'www.fitchratings.com' by performing a title search or by using the above link.

DUE DILIGENCE USAGE

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

Additional information is available at www.fitchratings.com.

Applicable Criteria

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

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

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

Global Surveillance Criteria for Structured Finance CDOs (pub. 13 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867800

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004348

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004348

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/20160511006589/en/

Fitch Ratings
Primary Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
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
New York
[email protected]

Source: Fitch Ratings

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