Fitch Upgrades Five Classes of Concord 2006-1

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded five classes of Concord Real Estate CDO 2006-1, Ltd/LLC (Concord 2006-1). Fitch's performance expectation incorporates prospective views regarding commercial real estate market value and cash flow declines. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The collateralized debt obligation (CDO) is very concentrated with only 10 assets remaining. Since Fitch's last rating action, classes A-1 and A-2 have paid in full while class B has been substantially paid down. The CDO received total paydown of approximately $87.5 million primarily from the full and partial payoff of 10 assets as well as asset amortization. Realized losses since the last rating action were only $3 million. The CDO is overcollateralized by approximately $46 million, as of the May 2015 trustee report.

On May 8, 2015, Fitch received notice of an optional redemption of the notes, which is scheduled to occur on June 25, 2015. Per the notice, the issuer has notified the trustee and the preferred shares paying agent of the optional redemption and has directed the trustee to sell the collateral interests remaining, in accordance with the loan documents.

Fitch's base case loss expectation is 50.1%. As of the May 2015 trustee report, and per Fitch categorization, the CDO was substantially invested as follows: whole loans/A-notes (14.3%), B-notes and rake bonds (46.8%), mezzanine debt (9.7%), commercial mortgage-backed securities (CMBS; 21.3%), and CDOs (7.9%). The current percentage of defaulted assets and assets of concern is 18.8% and 35.8%, respectively. The CDO is currently passing all of its par value and interest coverage tests.

Under Fitch's methodology, approximately 78.6% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. Modeled recoveries are 36.3%.

The largest contributor to Fitch's base case loss expectation is a B-note (21% of the total collateral) secured by two office towers located in Farmers Branch. TX. While the property is currently 100% leased to an investment grade tenant, the property is considered overleveraged, and Fitch modeled a substantial loss on this loan in its base case scenario.

The next largest contributor to Fitch's base case loss expectation is a defaulted B-note (18.8% of the total collateral) secured by a 575-room full-service resort located in Tucson, AZ. Since August 2010, the loan has been in maturity default and the special servicer is pursuing foreclosure. Fitch modeled a substantial loss on this loan in its base case scenario.

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 B through F pass the cash flow model at or above the ratings listed below. Upgrades to the classes were limited due to the increasing concentration of the portfolio.

WRP Management, LLC is the collateral asset manager for the transaction. The CDO's reinvestment period ended in December 2011.

RATING SENSITIVITIES

The Stable Outlooks generally reflect the senior positions in the capital structure and/or cushion in the modeling.

The rated notes are expected to be redeemed on the CDO's Optional Redemption date of June 25, 2015.

DUE DILIGENCE USAGE

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

Fitch has upgraded the following classes:

--$2.6 million class B to 'AAsf' from 'BBsf'; Outlook Stable;

--$10 million class C to 'Asf' from 'Bsf'; Outlook Stable.

Fitch has upgraded and assigned Outlooks to the following classes:

--$6 million class D to 'BBsf' from 'CCCsf'; Outlook Stable;

--$8.1 million class E to 'BBsf' from 'CCCsf'; Outlook Stable;

--$22.4 million class F to 'Bsf' from 'CCCsf'; Outlook Stable.

Classes A-1 and A-2 have paid in full. The ratings on classes G and H were previously withdrawn. Fitch does not rate 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. 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

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=986320 Dodd-Frank Rating Information Disclosure Form

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986320

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/20150612005726/en/

Fitch Ratings
Primary Surveillance Analyst
Stacey McGovern
Director
+1-212-908-0722
Fitch Ratings, Inc.
33 Whitehall St.
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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