NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 15 classes of Gramercy Real Estate CDO 2007-1 Ltd./LLC (Gramercy 2007-1). A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The affirmations at distressed levels reflect the probability of default of the classes. Since the last rating action in April 2013, approximately 14.2% of the underlying commercial mortgage backed security (CMBS) collateral has been downgraded and the average Fitch derived rating for the collateral has remained at 'B-/CCC+'. Further, as of the February 2014 trustee report, 57.5% of the CMBS collateral has a Fitch derived rating in the 'CCC' category and below, compared to 68.8% at the last rating action. Over this period, the class A-1 notes have received approximately $85.8 million in paydowns from both principal amortization and interest diversion due to the failure of the coverage tests.
The CDO continues to fail its overcollateralization tests resulting in the capitalization of interest for classes C through J. The transaction entered into an Event of Default (EOD) on March 12, 2012 due to the class A/B Par Value Ratio falling below 89%; to date, the majority controlling class has waived the EOD until January 30, 2015. In several recent payment periods, interest proceeds have been insufficient to pay interest on the senior classes. As a result, a portion of the interest due on the timely classes has been paid using principal proceeds. Fitch remains concerned about the CDO's ability to continue to make timely interest payments to the timely classes given the diminished amount of interest proceeds and significant swap counterparty payments which are senior to these classes within the waterfall.
Under Fitch's methodology, approximately 75.6% 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 21.8% reflecting low recovery expectations upon default of the CMBS tranches and non-senior real estate loans. This results in a Fitch base case loss of 59.1%, which is in line with the 59.7% base case loss at the last rating action.
The largest component of Fitch's base case loss is the expected losses on the CMBS bond collateral. The second largest contributor to loss is a defaulted mezzanine loan (6.6%) on Stuyvesant Town/Peter Cooper Village, a multifamily property located in New York, NY. Fitch anticipates a loss on the A-note and thus has modeled a term default for the mezzanine loan in the base case and no recoveries.
The third largest component of Fitch's base case loss expectation is a mezzanine loan (2.4%) secured by a 1,169,647 sf office property located in New York, NY. The property is 87% occupied as of September 2013 compared to 91% at year-end 2012. The decline was a result of several smaller tenants vacating during 2013. Fitch expects a moderate recovery on the mezzanine loan.
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 CREL collateral in the portfolio and uses the Portfolio Credit Model (SF PCM) for the CMBS collateral. Recoveries for the CREL collateral are based on stressed cash flows and Fitch's long-term capitalization rates. The transaction was not cash-flow modeled based on the limited available interest received from the assets relative to the interest rate swap payments due; unpredictable timing and availability of principal proceeds; and given the distressed nature of the ratings. All ratings 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 as well as consideration for the likelihood of the CDO to continue its ability to make timely payments on the senior classes. Ultimate recoveries to the senior class, however, should be significant.
All classes are subject to further downgrades should the collateral suffer from additional negative migration and defaults beyond those projected as well as from increasing concentration in assets of a weaker credit quality that could lead to further interest shortfalls. Gramercy 2007-1 is a commercial real estate collateralized debt obligation (CRE CDO) managed by CWCapital Investments LLC. The transaction had a five-year reinvestment period which ended in August 2012.
Fitch has affirmed the following classes:
--$575.4 million class A-1 notes at 'CCsf/RE 80%';
--$121 million class A-2 notes at 'Csf/RE 0%;
--$116.6 million class A-3 notes at 'Csf/RE 0%;
--$29.5 million class B-FL notes at 'Csf/RE 0%;
--$20 million class B-FX notes at 'Csf/RE 0%;
--$21.9 million class C-FL notes at 'Csf/RE 0%;
--$4.6 million class C-FX notes at 'Csf/RE 0%;
--$4.9 million class D notes at 'Csf/RE 0%;
--$5.6 million class E notes at 'Csf/RE 0%;
--$10.8 million class F notes at 'Csf/RE 0%';
--$3.5 million class G-FL notes at 'Csf/RE 0%';
--$2.7 million class G-FX notes at 'Csf/RE 0%';
--$2.4 million class H-FL notes at 'Csf/RE 0%';
--$6.9 million class H-FX notes at 'Csf/RE 0%';
--$18.5 million class J notes at 'Csf/RE 0%'.
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' (Nov. 25, 2013);
--'Global Structured Finance Rating Criteria' (Sep. 12, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions