Fitch Downgrades 1 and Affirms 8 Classes of N-Star Real Estate CDO I, Ltd.

NEW YORK--()--Fitch Ratings has downgraded one and affirmed eight classes issued by N-Star Real Estate CDO I, Ltd. (N-Star CDO I) as a result of paydowns to the senior notes offsetting the deterioration of the underlying collateral. A complete list of rating actions follows at the end of this release.

SENSITIVITY/RATING DRIVERS:

Since the last rating action in February 2012, approximately 23.9% of the collateral has been downgraded and 6.4% has been upgraded. Currently, 49.3% of the portfolio has a Fitch derived rating below investment grade and 23.3% has a rating in the 'CCC' category and below, compared to 45.5% and 13.7%, respectively, at the last rating action. Over this period, the transaction has received $64.5 million in pay downs which has resulted in the full repayment of the class A-1 notes and $3.5 million in payments to the class A-2 notes.

This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Based on this analysis, the class A-2 through C-1 notes' breakeven rates are generally consistent with the ratings assigned below.

For the class C-2 and D notes, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, the class C-2 notes have been downgraded and the class D notes affirmed at 'Csf', indicating that default is inevitable.

The Negative Outlook on the class A-2 through C-1 notes reflects the risk of adverse selection as the portfolio continues to amortize.

N-Star CDO I is a cash flow collateralized debt obligation (CDO), which closed Aug. 21, 2003. The collateral is composed of 62.7% commercial mortgage backed securities (CMBS), 22.6% real estate investment trusts (REIT), and 14.7% of structured finance CDOS (SF CDOs). The transaction is collateralized by 26 assets from 25 obligors. Fitch notes that the class B-1 notes are non-deferrable, while junior in priority to the class A OC test in the waterfall.

Fitch has taken the following actions:

--$42,362,368 class A-2A notes affirmed at 'AAsf'; Outlook Negative;

--$14,120,789 class A-2B notes affirmed at 'AAsf'; Outlook Negative;

--$15,000,000 class B-1 notes affirmed at 'Asf'; Outlook Negative;

--$10,000,000 class B-2 notes affirmed at 'BBBsf'; Outlook Negative;

--$5,041,948 class C-1A notes affirmed at 'BBsf'; Outlook Negative;

--$5,096,200 class C-1B notes affirmed at 'BBsf'; Outlook Negative;

--$24,420,540 class C-2 notes downgraded to 'Csf' from 'CCCsf';

--$10,198,058 class D-1A notes affirmed at 'Csf';

--$4,123,976 class D-1B notes affirmed at 'Csf'.

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);

--'Global Rating Criteria for Structured Finance CDOs' (Oct. 3, 2012);

--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=690203

Global Criteria for Cash Flow Analysis in CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518

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Contacts

Fitch Ratings
Primary Surveillance Analyst:
Matthew McGowan, +1-212-908-0733
Analyst
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Surveillance Analyst:
Matthew McGowan, +1-212-908-0733
Analyst
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com