Fitch Takes Various Actions on FMC 2005-1

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded two classes, affirmed eight classes, and downgraded one class of FMC Real Estate CDO 2005-1 Ltd. (FMC 2005-1) reflecting Fitch's base case loss expectation of 45.5%. Fitch's performance expectation incorporates prospective views regarding commercial real estate market values and cash flow declines. A detailed list of rating actions follows at the end of this release.

The upgrades to the senior-most classes are the result of significant paydown of the liabilities as a result of the CDO exiting its reinvestment period in August 2010. Since last review, class A-1 has received paydown of $107 million. Nine loans have paid in full with multiple other loans subject to partial paydown or amortization. Additionally, the discounted note sale of two assets resulted in further paydown and minimal realized losses of $3.8 million to the CDO. Defaulted assets have risen to 38.3% from 27.8% at last review while loans of concern have increased to 12.7% from 6.8%. The downgrade to class H reflects increased expected losses from defaulted assets relative to the credit enhancement to the class.

Under Fitch's methodology, approximately 86% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. Fitch estimates that average recoveries will be 47.1%.

FMC 2005-1 is a commercial real estate (CRE) CDO managed by SCFFI GP LLC, an affiliate of Five Mile Capital. Per Fitch categorizations, the current CDO collateral consists of 47% senior debt, 26% B-notes, 22% mezzanine debt, and 5% cash, which is expected to be applied to further paydown class A-1 at the next payment date.

The largest component of Fitch's base case loss expectation is related to a defaulted mezzanine loan (7.9%) secured by ownership interests in a portfolio of five resort hotels located in Wailea, Hawaii; La Quinta, California; Phoenix, Arizona; Miami, Florida; and Berkeley, California. The mezzanine position is significantly over leveraged; Fitch modeled a full loss in its base case scenario.

The second largest component of Fitch's base case loss expectation is related to a defaulted B-note (5.6%) secured by approximately 18 acres of land located in Las Vegas, Nevada. The property is located on Las Vegas Boulevard, in proximity to several popular hotel/casinos. The land is currently improved with a variety of commercial buildings, including a limited-service hotel, restaurants and retail space. The sponsor's original plan was to redevelop the site into an Elvis Presley-themed hotel/casino. The plan stalled amid the economic downturn, and the loan defaulted in January 2009. Fitch modeled a complete loss on this subordinate position in its base case scenario.

The third largest component of Fitch's base case loss expectation is related to cross-collateralized and cross-defaulted notes secured by two multifamily properties (9.7%) located in Phoenix, Arizona. The loans were crossed as part of a loan modification and extension in 2009. Fitch modeled a term default with a significant combined loss to both loans in its base case scenario.

This transaction was analyzed according to the 'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions', which applies stresses to property cash flows and 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. The credit enhancement to classes A-1 through C were then compared to the modeled expected losses, and determined to be consistent with the rating assigned below. Based on prior modeling results, no material impact was anticipated from cash flow modeling the transaction.

The Positive and Stable Rating Outlook revisions for classes A-1 though C reflect the classes' senior positions in the transaction, and better than expected loan recoveries over the past year; should loan resolutions continue this positive trend, upgrades are possible.

The 'CCC' and below ratings for classes D through H are based on a deterministic analysis that considers Fitch's base case loss expectation for the pool and the current percentage of defaulted assets and Fitch Loans of Concern factoring in anticipated recoveries relative to each class' credit enhancement. These classes were assigned Recovery Ratings (RR) in order to provide a forward-looking estimate of recoveries on currently distressed or defaulted structured finance securities.

Fitch has upgraded and revised Loss Severity (LS) ratings and Outlooks for the following classes, as indicated:

--$24.8 million class A-1 to 'AAA/LS5' from 'BBB/LS4'; Outlook to Stable from Negative;

--$43.9 million class A-2 to 'A/LS5' from 'BBB/LS5'; Outlook to Positive from Negative.

Fitch has downgraded the following class:

--$12.1 million class H to 'C/RR6' from 'CC/RR6'.

Fitch has affirmed and revised Outlooks for the following classes, as indicated:

--$43.9 million class B at 'BB/LS5'; Outlook to Positive from Negative;

--$49.4 million class C at 'B/LS5'; Outlook to Stable from Negative;

--$34.1 million class D at 'CCC/RR4';

--$13.2 million class E at 'CCC/RR6';

--$22 million class F at 'CCC/RR6';

--$35.2 million class G at 'CC/RR6'.

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 13, 2010);

--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (Dec. 2, 2010);

--'Global Rating Criteria for Structured Finance CDOs' (Oct. 15, 2010);

--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009);

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

--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 17, 2010);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Feb. 17, 2010).

Applicable Criteria and Related Research:

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564895

Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=579165

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326

Criteria for Structured Finance Loss Severity Ratings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=426038

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605426

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