Fitch Downgrades Sovereign Commercial Mtge Securities Trust 2007-C1; Revises Outlooks

NEW YORK--(BUSINESS WIRE)--Fitch Ratings downgrades and assigns Loss Severity (LS) ratings for Sovereign Commercial Mortgage Securities Trust's commercial mortgage pass-through certificates, series 2007-C1, as indicated:

--$105.2 million class A-J to 'BBB-/LS3' from 'AAA'; Outlook Negative;

--$15.2 million class B to 'BB/LS5' from 'AA-'; Outlook Negative;

--$17.7 million class C to 'B/LS4' from 'A-'; Outlook Negative;

--$20.3 million class D to 'B-/LS4' from 'BB+'; Outlook Negative;

--$10.1 million class E to 'B-/LS5' from 'BB-'; Outlook Negative.

In addition, Fitch has downgraded and assigned or revised the Recovery Rating (RR) as indicated for the following classes:

--$7.6 million class F to 'CCC/RR1' from 'B-';

--$2.5 million class H to 'CC/RR6' from 'CCC/RR2';

--$3.8 million class J to 'C/RR6' from 'CC/RR3';

--$3.6 million class L to 'D/RR6' from 'C/RR6'.

Class M has been downgraded to 'D/RR6' due to realized losses.

Fitch has also affirmed and assigned LS ratings as indicated to the following classes:

--$441.6 million class A-1A at 'AAA/LS1'; Outlook Stable;

--$228.3 million class A-2 at 'AAA/LS1'; Outlook Stable;

--Interest-only class X at 'AAA'; Outlook Stable;

The $2.5 million class G remains at 'CCC/RR1'.

Fitch has affirmed and revised the Recovery Rating on the following class:

--$2.5 million class K to 'C/RR6' from 'C/RR5'.

Class N is not rated by Fitch. Class A-1 has been paid in full.

The downgrades are the result of Fitch's revised loss estimates for the transaction following an in-depth review and Fitch's prospective analysis which is similar to its recent vintage fixed rate CMBS analysis. Fitch expects potential losses of 4.3% of the remaining pool balance, approximately $38 million, from the loans in special servicing and the loans that are not expected to refinance at maturity based on Fitch's refinance test.

The loans in this transaction do not have the same features as a typical commercial mortgage backed security (CMBS) transaction as most of the loans in the pool were not originated for securitization. Therefore, the loans lack some of the structural features and reporting requirements seen in typical CMBS loans. In addition, the loan pool is not geographically diverse, as 58.3% and 17.6% of the properties are located in New York and New Jersey, respectively.

Fitch has identified 62 Loans of Concern (25.5%), including seven loans in special servicing (4.3%) as of the April 2010 remittance. Two of the specially serviced loans have been liquidated with significant loss severities.

The largest specially serviced asset (2%) is a 299-unit multifamily property in Bradenton, FL. The loan transferred in September 2008 for payment default and is in foreclosure. The servicer-reported occupancy as of December 2009 was 84%.

The second largest specially serviced asset (0.3%) is a 207-unit multifamily property located in Hialeah, FL. The property transferred to special servicing in February 2010 as the borrower was unable to refinance.

Fitch stressed the cash flow of the remaining non-defeased loans by applying a 10% reduction to 2008 fiscal year end net operating income and applying an adjusted market cap rate between 7.5% and 10.5% to determine value.

Similar to Fitch's prospective analysis of recent vintage CMBS, each loan also underwent a refinance test by applying an 8% interest rate and 30-year amortization schedule based on the stressed cash flow. Loans that could refinance to a debt service coverage ratio of 1.25 times or higher were considered to payoff at maturity. Under this scenario, 114 non-specially serviced loans are not expected to payoff at maturity with 48 loans incurring a loss when compared to Fitch's stressed value.

Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 7, 2009 report, 'Surveillance Methodology for Recent Vintage U.S. CMBS,' which is available at 'www.fitchratings.com' under the following headers:

Structured Finance then CMBS then Criteria Reports

Additional information is available at 'www.fitchratings.com'.

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