NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed all rated classes of Capmark VII-CRE, Ltd./Corp. (Capmark VII) reflecting Fitch's base case loss expectation of 23.6%. 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.
KEY RATING DRIVERS
Since Fitch's last rating action, class A-2 has received pay down of approximately $85 million from the full payoff of two assets, the liquidation of two other assets, asset amortization, and interest diversion from the failure of coverage tests. Realized losses since last review total $13.1 million. The CDO is under-collateralized by $171 million.
The portfolio is very concentrated with only 14 assets remaining, four of which are cross collateralized. CDO collateral consists entirely of whole loans and A-notes. The current combined percentage of defaulted assets and Fitch Loans of Concern (LOCs) is 42.3%.
Capmark VII is a commercial real estate (CRE) CDO managed by CenterSquare Investment Management (formerly Urdang Capital Management), a real estate investment subsidiary of BNY Mellon Asset Management. As of the February 2014 trustee report, the transaction is failing two of its principal coverage tests resulting in diverted interest to pay principal to A-2 and capitalized interest to classes F through K.
Because the collateral pool is concentrated, Fitch assumed that 100% of the portfolio will default in the base case stress scenario, defined as the 'B' stress. Modeled recoveries were above average at 76.4% due to the senior debt positions of the collateral.
The largest component of Fitch's base case loss expectation is related to a defaulted whole loan (11.2% of the pool) secured by undeveloped land located adjacent to the Potomac River in Arlington, VA. Fitch modeled a significant loss on this loan 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 for the loan assets are based on stressed cash flows and Fitch's long-term capitalization rates. The credit enhancement to the timely pay classes A-2 and B was then compared to the modeled expected losses, and in consideration of the significant concentration of the pool, high percentage of defaulted and LOC assets, and related risk of future insufficient interest and principal proceeds to pay interest on these classes, the credit enhancement was determined to be consistent with the ratings assigned below. Based on prior modeling results, no material impact was anticipated from cash flow modeling the transaction.
A Stable Outlook was assigned based on the class's senior position in the structure and cushion in the modeling.
The 'CCC' and below 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.
If CDO collateral recoveries are better than expected, Fitch may consider upgrades to the senior classes. However, upgrades will be limited as the pool becomes more concentrated given the risk of adverse selection and the possibility of insufficient interest and principal proceeds to pay the timely interest due on the senior classes. While Fitch has modeled conservative loss expectations on the pool, unanticipated increases in defaulted loans and/or loss severity could result in downgrades.
Fitch affirms the following classes:
--$82.6 million class A-2 at 'BBsf'; Outlook Stable;
--$80 million class B at 'CCCsf'; RE 100%;
--$30 million class C at 'CCsf'; RE 30%;
--$7.6 million class D at 'Csf'; RE 0%;
--$7.5 million class E at 'Csf'; RE 0%;
--$34.8 million class F at 'Csf'; RE 0%;
--$13.5 million class G at 'Csf'; RE 0%;
--$11 million class H at 'Csf'; RE 0%;
Class A-1 has paid in full.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (November 2013);
--'Global Structured Finance Rating Criteria' (May 2013).
Applicable Criteria and Related Research:
Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions
Global Structured Finance Rating Criteria