Fitch Downgrades 2 and Affirms 4 Classes of GMAC 1998-C2

NEW YORK--(BUSINESS WIRE)--Fitch Ratings downgrades GMAC Commercial Mortgage Securities, Inc., series 1998-C2 as follows:

--$19 million class J to 'B/LS4' from 'BB+'; Outlook to Negative from Stable;

--$19 million class K to 'C/RR2'from 'CC/RR1'.

Fitch affirms the following classes:

--$22.3 million class E at 'AAA/LS4'; Outlook Stable;

--$88.6 million class F at 'AAA/LS3'; Outlook Stable;

--$44.3 million class G at 'AAA/LS3'; Outlook Stable;

Fitch affirms and revises the Outlook for the following class:

--$19 million class H at 'A/LS4'; Outlook to Negative from Stable.

Classes A-1, A-2, B, C and D have paid in full. Classes L and M remain at 'D/RR6' due to principal losses.

In addition, Fitch withdraws the 'AAA' rating on Interest-only class X 'AAA'.

The actions reflect Fitch's prospective review of potential stresses and expected losses associated with specially serviced assets. Fitch expects losses of 12.4% of the remaining pool balance, approximately $28.5 million, from the loans in special servicing and the loans that are not expected to refinance at maturity based on Fitch's refinance test.

As of the July 2010 distribution date, the pool's collateral balance has paid down 90.6% to $237 million from $2.5 billion at issuance. Of the remaining loans, 12 have defeased (32.7%). Interest shortfalls currently extend to the class J notes.

As of July 2010, there are 13 loans (18.6%) in special servicing, including loans to five single-tenant properties (6.5%) occupied by Circuit City and another retail property (1.7%) where the major tenant is Circuit City. Circuit City filed for bankruptcy in late 2008. Three of the properties are located in the Northeast (two in New York and one in Connecticut), and three are located in the Midwest (one each in Ohio, Michigan, and Wisconsin). The properties are in various states of the foreclosure process, with half already considered Real Estate Owned (REO).

The next largest Fitch Loan of Concern is secured by a retail property (2.2%) located in Indianapolis. The borrower was unable to refinance the property at its May 2008 maturity due to volatility in the capital markets and environmental issues. The borrower has been unable to perform under a forbearance agreement, and the servicer is pursuing foreclosure while evaluating the environmental condition.

Fitch stressed the cash flow of the remaining non-defeased loans by generally applying a 10% reduction to 2008 fiscal year end net operating income and applying an adjusted market cap rate between 7.25% 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, 16 loans are not expected to payoff at maturity with six 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'.

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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