Fitch Takes Various Actions on Heller 1999-PH1; Assigns Outlooks

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded and assigned Rating Outlooks to several classes of Heller Financial Commercial Mortgage Asset Corp.'s (HFCMC) mortgage pass-through certificates, series 1999 PH-1. Fitch has also assigned Loss Severity (LS) ratings and Recovery Ratings (RRs) to numerous classes. A detailed list of rating actions follows the end of the release.

The downgrades are due to an increase in expected losses on specially serviced assets coupled with expected losses following Fitch's prospective review of potential stresses to the transaction. The majority of the total expected losses are associated with loans currently in special servicing. Fitch expects losses of 27.2% of the remaining transaction balance, or $42.2 million, from loans in special servicing and loans that cannot refinance at maturity based on Fitch's refinance test.

As of the June 2010 distribution date, the pool's certificate balance has paid down 84.6% to $155.3 million from $1.0097 billion at issuance. Five loans are defeased (8.1% of the current transaction balance).

There are seven specially serviced loans in the pool (49.6%), including three of the five largest loans in the pool. Three loans are delinquent, one is in foreclosure, one is real estate owned (REO) and two are current.

The largest specially serviced asset (21.1%) is a 444,760 square foot (sf) office property located in Franklin Township, NJ. The loan transferred to special servicing in January 2009 and has been REO as of April 2010. The property is under contract and closing is anticipated this month. Fitch expects losses upon liquidation.

The second largest specially serviced asset (11.2%) is secured by a two office building portfolio (248,470 sf) in Springfield, IL. The loan transferred to special servicing in June 2010 and is currently 30 days delinquent. The buildings are occupied by the State of Illinois Department of Public Aid and Health Sisters Hospital System. It should be noted that the State is eight months delinquent on its rent and owes the borrower approximately $1.5 million. The State's persistent delinquency has drained the Borrower's cash reserves. As of YE 2009, the debt service coverage ratio (DSCR) and occupancy was 1.40 times (x) net operating income (NOI) and 100%, respectively.

Fitch stressed the cash flow of the remaining non-defeased loans by applying a 10% reduction to 2008 fiscal year end NOI and applying an adjusted market cap rate between 7.25% and 10% to determine value.

Similar to Fitch's prospective analysis of recent vintage commercial mortgage backed securities (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 refinancing to a DSCR of 1.25x or higher were considered to pay off at maturity. Of the non-defeased or non-specially serviced loans, one (5% of the pool) incurred a loss when compared to Fitch's stressed value.

Fitch has upgraded and assigned Outlooks and LS ratings as indicated:

--$15.9 million class G to 'AAA/LS-4' from 'AA+'; Outlook Stable.

Fitch has downgraded and assigned Outlooks, LS ratings and RRs as indicated:

--$20.2 million class J to 'B-/LS4' from 'BBB-'; Outlook Negative

--$11.1 million class K to 'CC/RR4' from 'BB+';

--$9.7 million class L to 'C/RR6' from 'CCC/RR1';

--$9.7 million class M to 'C/RR6' from 'CC/RR3'.

In addition, Fitch has affirmed, maintained or revised the Outlook and assigned LS ratings as indicated:

--$12.2 million class E at 'AAA/LS3'; Outlook Stable;

--$37.9 million class F at 'AAA/LS3'; Outlook Stable;

--$35.3 million class H at 'A-/LS3'; Outlook to Negative from Stable.

Classes A1, A2, B, C, and D have paid in full.

Fitch withdraws the rating on the interest-only class X. Additional information is available in Fitch's June 23 press release, 'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities'.

Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the following report, also available at 'www.fitchratings.com':

--'Surveillance Methodology for Recent Vintage U.S. CMBS' (July 7, 2009).

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

Related Research:

Surveillance Methodology for Recent Vintage U.S. CMBS

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=457782

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