Fitch Downgrades Six Classes of GCCFC 2005-FL3; Assigns Recovery Ratings

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded six classes from Greenwich Capital Commercial Funding Corp. commercial mortgage pass-through certificates, series 2005-FL3. While Fitch expects minimal, if any, losses to the pooled certificates in the base case, the downgrades are the result of Fitch's prospective views regarding commercial real estate values and cash flow decline. In addition, the loan has transferred to special servicing due to the inability to refinance at maturity. The Negative Rating Outlooks reflect additional sensitivity analysis related to further negative credit migration of the underlying collateral. A detailed list of rating actions follows at the end of this release.

The remaining loan in the transaction is the $45 million Lowell Hotel loan ($30 million A Note and $15 million non pooled B Note). In addition, there is $15 million in mezzanine debt held outside the trust. The loan is collateralized by a luxury hotel in New York, NY. Under Fitch's updated analysis, the loan was modeled to default in the base case stress scenario, defined as the 'B' stress, as the loan has transferred to special servicing. In this scenario, Fitch's analysis was based on servicer provided financial information. Fitch analyzed servicer reported operating statements and STR Reports, in addition to other information received from the master servicer, as the loan recently transferred to the special servicer.

The loan is collateralized by a 17-story full-service luxury hotel located on 63rd Street between Madison and Park Avenues in New York City. There are 70 rooms with a high percentage of suites (47 rooms/67% of room count) and suites with fireplaces (33 rooms/47% of room count). Room sizes range from 400 square feet (sf) to 2,000 sf. Amenities include two restaurants, the Post House located on the ground floor and the Pembroke Room located on the second floor.

The loan transferred to special servicing Aug. 10, 2010 due to imminent default when the borrower indicated that they would be unable to pay off the loan at the final maturity date Sept. 1, 2010. As the loan just transferred, there is no information yet on a possible workout strategy.

Property performance has declined. While RevPAR remains relatively stable compared to issuance levels, there has been a significant decline in net operating income (NOI). As of year end (YE) 2009, the servicer reported NOI has declined 43% since YE 2008 and 20% since issuance. As of the June 2010 STR report, the occupancy, ADR and RevPAR were 60.1%, $845, and $507, respectively, compared to issuance levels (as of trailing 12 months [TTM] October 2005) of 81.8%, $625 and $511, respectively. However, the hotel continues to outperform its competitive set. As of June 2010, the competitive set levels were 54.9%, $683, and $375, respectively.

Fitch downgrades, removes from Rating Watch Negative and assigns Recovery Ratings to the following pooled and non-pooled certificates:

--$12.2 million class M to 'CCC/RR1' from 'BBB+';

--$5.9 million class H-LH to 'CCC/RR1' from 'BBB+';

--$3.9 million class K-LH to 'CCC'/RR1' from 'BBB';

--$4 million class M-LH to 'CCC'/RR6 from 'BBB-';

--$1.2 million class N-LH to 'CCC/RR6' from 'BBB-'.

Fitch downgrades, removes from Rating Watch Negative and assigns a Rating Outlook to the following pooled certificate:

--$5.1 million class L to 'BBB' from 'A-'; Outlook Negative.

Fitch affirms and assigns Rating Outlooks to the following pooled certificates:

--$2 million class H at 'AAA'; Outlook Stable;

--$6.7 million class J at 'AA+'; Outlook Stable;

--$4.4 million class K at 'A+'; Outlook Negative.

Classes A-1 through G, X-1, and various non-pooled classes related to individual loans have paid in full.

This transaction was analyzed according to the 'Surveillance Criteria for U.S. Commercial Real Estate Loan CDOs'. It applies stresses to property cash flows and uses debt service coverage ratio (DSCR) tests to project future default levels for the underlying portfolio. Recoveries are based on stressed cash flows and Fitch's long-term capitalization rates. This methodology was used to review this transaction as floating-rate commercial mortgage backed security (CMBS) loan pools are concentrated and similar in composition to CREL CDO pools. In many cases, the CMBS notes are senior portions of notes held in CDO transactions. The assets are generally transitional in nature, frequently underwritten with pro forma income assumptions that have not materialized as expected. Overrides to this methodology were applied on a loan-by-loan basis if the property specific performance warranted an alternative analysis.

For bonds rated 'B-' or better, the current credit enhancement levels were compared to the expected losses generated in each rating category divided by the total deal size. These classes were assigned Loss Severity (LS) ratings, which indicate each tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the expected losses for the collateral in the 'B' stress. LS ratings should always be considered in conjunction with probability of default indicated by a class' long-term credit rating. Fitch does not assign Rating Outlooks or LS ratings to classes rated 'CCC' and lower.

Rating Outlooks were determined by further stressing the cash flows and fully recognizing all maturity defaults in all ratings stresses. The credit enhancements were then compared to the expected losses generated in each rating category to determine potential credit migration over the next two years. If the Rating Outlook scenario would imply a lower rating, then the class was assigned a Negative Outlook.

The ratings for bonds rated 'CCC' or lower, are based on a deterministic analysis. Bonds are rated 'C' when the expected losses on currently defaulted loans exceed a classes' respective credit enhancement level. Bonds are rated 'CC' when the combined base case expected losses on the currently defaulted loans and loans likely to default exceed a classes' respective credit enhancement level. Bonds are rated 'CCC' when the base case expected loss exceeds a classes' respective credit enhancement level.

Bonds rated 'CCC' and below were assigned Recovery Ratings (RR) in order to provide a forward-looking estimate of recoveries on currently distressed or defaulted structured finance securities. Recovery Ratings are calculated by subtracting the base case expected losses in reverse sequential order from the pooled and non-pooled rake certificates. Any principal recoveries first pay interest shortfalls on the bonds and then sequentially through the classes. The remaining bond principal amount is divided by the current outstanding bond balance. The resulting percentage is used to assign the Recovery Ratings on the bonds.

In addition to the CREL CDO methodology, Fitch reviewed the transaction in conjunction with its 'Rating U.S. Single-Borrower Commercial Mortgage Transactions,' as there is one remaining loan. This review included reviewing insurance requirements and borrower structure. As there is no current criteria for assigning loss severity ratings to single-borrower deals, none were assigned to this transaction's classes.

The rating actions reflect the application of Fitch's current criteria which is available at www.fitchratings.com and specifically include the following reports or releases:

--'Global Structured Finance Rating Criteria' (Sept 20, 2009)

--'Surveillance Criteria for U.S. Commercial Real Estate Loan CDOs' (Nov. 9, 2009)

--'Criteria for Structure Finance Recovery Ratings' (Aug. 17, 2009)

--'Rating U.S. Single-Borrower Commercial Mortgage Transactions' (Feb. 7, 2007).

Additional information is available at www.fitchratings.com.

Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=469406

Surveillance Criteria for U.S. Commercial Real Estate Loan CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=482806

Criteria for Structured Finance Recovery Ratings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=462434

Rating U.S. Single-Borrower Commercial Mortgage Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=312966

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