NEW YORK--()--Fitch Ratings has downgraded one class and affirmed seven classes of Capital Trust RE CDO 2005-1 (Capital Trust 2005-1). Fitch's base case loss expectation for the transaction is 44%. Fitch's performance expectation incorporates prospective views regarding commercial real estate market value and cash flow declines. A detailed list of rating actions follows at the end of this release.
On March 20, 2012, the Trustee declared an event of default (EOD) due to non-payment of full and timely accrued interest to the class B notes. The class B notes are a non-deferrable class and are downgraded to 'Dsf' due to default in the timely payment of their accrued interest. Noteholders had not given direction to accelerate the notes or liquidate the portfolio at the time of this review.
The CDO's current high default rate (45.6%) and additional assets with interest shortfalls (10.5%) has led to a decreasing amount of available interest proceeds. In recent payment periods, interest was insufficient to pay timely interest; the availability of future proceeds cannot be accurately predicted at this time. Class A notes are affirmed at 'CCCsf' due to the possibility of missed timely interest in the future, which would constitute a default. However, ultimate recoveries to the class could be significant.
Capital Trust 2005-1 is a CRE collateralized debt obligation (CDO) managed by CT Investment Management Co., LLC (CTIMCO). As of the August 2012 trustee report, the CDO was invested as follows: B-notes (62.1%), mezzanine debt (14.3%), CMBS (9.8%) and CDOs (13.7%). Since Fitch's last rating action, the capital structure has paid down by $50.7 million. Realized losses over the same period were approximately $44.6 million. As of the August 2012 trustee report, all overcollateralization (OC) and interest coverage (IC) tests are failing their respective triggers.
The transaction is concentrated with only 16 assets remaining in the portfolio. Approximately 45.6% of the pool is currently defaulted while a further 19% are considered assets of concern.
Under Fitch's methodology, approximately 64.4% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. In this scenario, the modeled average cash flow decline is 15.1% from, generally, year-end 2011 or trailing 12-month first quarter 2012. Modeled recoveries are 31.7%.
The largest component of Fitch's base case loss expectation is a defaulted B-note (9.6% of the pool) secured by a full service hotel located in Long Beach, CA. The loan defaulted at loan maturity in July 2012. Despite an increase to the cash flow since the last review, the loan continues to be overleveraged. Fitch modeled a substantial loss in its base case scenario.
The next largest component of Fitch's base case loss expectation is a defaulted B-note (3.8%) secured by two hotel gaming properties in Tunica, MS totaling 439 rooms. Two other properties were released. The loan was foreclosed on Nov. 2011 and two properties remain REO. Fitch modeled a substantial loss in its base case scenario due to its overleveraged position. 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 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 ratings for classes C 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 classes credit enhancement.
Fitch downgrades the following class:
--$39,309,000 class B to 'Dsf' from 'CCsf'; RE 60%;
Fitch affirms the following classes:
--$67,782,497 class A at 'CCCsf'; RE 100%;
--$21,110,000 class C at 'Csf'; RE 0%;
--$14,354,000 class D at 'Csf'; RE 0%;
--$15,199,000 class E at 'Csf'; RE 0%;
--$6,755,000 class F at 'Csf'; RE 0%;
--$6,755,000 class G at 'Csf'; RE 0%;
--$10,133,000 class H at 'Csf'; RE 0%.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (Dec. 1, 2011);
--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 16, 2011).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions
Structured Finance Recovery Estimates for Distressed Securities