Fitch Takes Various Rating Actions on 20 CRE CDOs

NEW YORK--()--Fitch Ratings has downgraded five, upgraded seven, and affirmed 130 classes from 20 commercial real estate collateralized debt obligations (CRE CDOs) with exposure to commercial mortgage backed securities (CMBS).

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Rating Criteria for Structured Finance CDOs'. None of the reviewed transactions have been analyzed within a cash flow model framework, as the impact of structural features and excess spread, or conversely, principal proceeds being used to pay CDO liabilities and hedge payments, was determined to be minimal in the context of these CDO ratings as the rating are already distressed or the hedge has expired.

KEY RATING DRIVERS

The upgrade to class P in Madison Square 2004-1 is attributed to current credit enhancement (CE), deleveraging of the capital structure, and collateral quality. Approximately $5.8 million remains in the class with $1.6 million received since the last rating action. Although the notes are now able to withstand losses consistent with a higher rating according to Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis, given the increasing concentration with only eight assets from four obligors remaining and due to the concentration of distressed collateral, the upgrade has been limited to 'BBBsf'.

The upgrade to class A1 in Sorin Real Estate CDO I, Ltd./Corp. is attributed to deleveraging of the capital structure and the recovery prospects of distressed collateral. Since the last rating action the class has received $8.5 million. The notes are now able to withstand losses generally consistent with a 'BB' rating according to Fitch's SF PCM analysis.

The upgrade to class I-MM in Newcastle CDO VI, Ltd/Corp. to 'Bsf' is attributed to deleveraging of the capital structure. The class has received $66.2 million, since the last rating action. Although the notes are now able to withstand losses consistent with a higher rating according to Fitch's SF PCM analysis, given the increasing concentration with 29 assets from 27 obligors remaining and due to the concentration of distressed collateral, the upgrade has been limited to 'Bsf'.

Classes A-3FL of G-FORCE 2005-RR2 LLC, A-2 of G-Star 2003-3 Ltd./Corp., F of Morgan Stanley 1997-RR, and F-7 of MSCI 2004-RR have been upgraded to 'CCCsf' as the credit profiles of the underlying transactions have improved, the capital structures continue to delever, and/or the class CE is now comparable to the 'CCC' rating loss rate (RLR) by SF PCM. Under this analysis, three additional classes have been affirmed at 'CCCsf'.

In addition, six classes have been affirmed at 'CCsf', indicating that default is probable. These classes did not pass the 'CCC' RLR in SF PCM and/or are reliant on collateral rated 'CC' to perform. However, the CE of the notes exceeds the percentage of collateral experiencing full interest shortfalls. Under this analysis, four additional classes have been downgraded and none have been upgraded to 'CCsf'.

For transactions where the percentage of collateral experiencing full interest shortfalls significantly exceeds the CE level of the most senior class of notes, Fitch did not use SF PCM, as the probability of default for all classes of notes can be evaluated without factoring potential further losses.

Fitch affirmed 89 classes at 'Csf' because 1) the CE levels of the notes are below the percentage of collateral experiencing interest shortfalls or otherwise anticipated to take a loss on the transaction or 2) because the notes are undercollateralized. In general, the CE levels are also significantly below the percentage of the collateral with a Fitch derived rating of 'CC' and below.

Fitch affirmed 15 classes at 'Dsf' because they are non-deferrable classes that have experienced interest payment shortfalls. Fitch affirmed an additional 16 classes at 'Dsf' because the classes have experienced principal writedowns.

RATING SENSITIVITIES

Negative migration and defaults beyond those projected could lead to downgrades for the 13 transactions analyzed under the SF PCM. The remaining seven transactions have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for classes to be downgraded to 'Dsf' if they are either non-deferrable classes that experience any interest payment shortfalls or are classes that experience principal writedowns.

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Rating Criteria for Structured Finance CDOs'. None of the transactions have been analyzed within a cash flow model framework, as the effect of structural features and excess spread available to amortize the notes were determined to be minimal. The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 20 CRE CDO's', released and available at 'www.fitchratings.com' by performing a title search or by using the above link.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Fitch Takes Various Rating Actions on 20 CRE CDOs

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867035

Applicable Criteria

Global Rating Criteria for Structured Finance CDOs (pub. 16 Jul 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Global Structured Finance Rating Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985939

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Surveillance Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Surveillance Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com