Fitch Upgrades Three Classes of Capmark VII

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded three classes and affirmed four of Capmark VII-CRE, Ltd./Corp. (Capmark VII). A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The upgrades reflect increased credit enhancement to the classes and better than expected recoveries on resolved loans, since the last rating action. The CDO is extremely concentrated with only two whole loans remaining. Fitch expects above-average recoveries on the assets due to the senior debt position of the collateral and quality of the assets and their markets.

Since Fitch's last rating action, class B has received additional paydown of approximately $51.1 million from the full payoff of three cross collateralized assets; the discounted payoff or sale of three other assets; asset amortization; and interest diversion from the failure of coverage tests. Realized losses since last review total $22.5 million. The CDO is under-collateralized by $205 million.

Capmark VII is a commercial real estate (CRE) CDO managed by CenterSquare Investment Management, a real estate investment subsidiary of BNY Mellon Asset Management. As of the January 2016 trustee report, the transaction was failing two of its principal coverage tests resulting in diverted interest to pay principal to class B and capitalized interest to classes F through K.

Because the collateral pool is concentrated, Fitch assumed that 100% of the portfolio will default in the base case stress scenario, defined as the 'B' stress. Modeled recoveries are above average at 88% due to the senior debt position of the collateral.

The largest remaining loan in the pool (67.7% of the pool) is a whole loan secured by a 105,000 square foot (sf) telecommunications and office property located in San Francisco, CA. The majority of the tenancy is composed of telecom-related tenants. As of December 2015, occupancy was reported at 77.7%, a decline from the December 2014 reported occupancy of 86%. There is minimal tenant roll scheduled for 2016. Vacant space is expected to appeal to creative office-space users. The largest tenant, which makes up approximately 47% of the net rentable area (NRA), has staggered lease maturities between April 2017 and October 2019. The loan has a scheduled maturity of April 2016 with extension options through 2018; however, the lender is reportedly not contractually obligated to exercise such options. The property is reportedly under contract for sale by the sponsor. Fitch modeled a full recovery on this loan in its base case scenario.

The other loan in the pool (32.3%) is a whole loan secured by five office properties located in a Monterey, CA office complex. As of the Dec. 31, 2015 rent roll, the portfolio was 76.3% occupied. The portfolio is underperforming the market. Per Reis, at third quarter 2015, the properties' Monterey office sub-market had a vacancy rate of 14%. Fitch modeled a 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 (DSCR) tests to project future default levels for the underlying portfolio. Recoveries for the loan assets 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. Upgrades were limited due to the pool's extreme concentration.

RATING SENSITIVITIES

Future upgrades to classes B through D are expected to be limited due to the transaction's concentration. Classes B through G are subject to downgrade should loan performance decline and/or further losses be realized. Classes E and below are significantly under-collateralized and expected to ultimately default.

DUE DILIGENCE USAGE

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

Fitch has upgraded the following ratings:

--$10.4 million class B to 'Bsf', from 'CCCsf'; Stable Outlook assigned; RE 100%;

--$30 million class C to 'CCCsf' from 'CCsf'; RE 100%;

--$7.5 million class D to 'CCsf' from 'Csf'; RE 90%;

Fitch has affirmed the following ratings:

--$7.5 million class E at 'Csf'; RE 0%;

--$35.7 million class F at 'Csf'; RE 0%;

--$13.9 million class G at 'Csf'; RE 0%;

--$11.3 million class H at 'Csf', RE 0%.

Classes A-1 and A-2 have paid in full. Fitch does not rate Classes J, K , and Income Notes.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions (pub. 27 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870009

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

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. 17 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873275

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999083

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999083

Endorsement Policy

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

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160204006609/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
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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