Fitch Affirms Wachovia Bank CRE CDO 2006-1

NEW YORK--(BUSINESS WIRE)--Fitch affirms all classes of Wachovia Bank CRE CDO 2006-1 (Wachovia CRE CDO) floating-rate notes as follows:

--$616,500,000 class A-1A at 'AAA';

--$68,500,000 class A-1B at 'AAA';

--$145,000,000 class A2A at 'AAA';

--$145,000,000 class A-2B at 'AAA';

--$53,300,000 class B at 'AA';

--$39,000,000 class C at 'A+';

--$12,350,000 class D at 'A';

--$13,650,000 class E at 'A-';

--$24,700,000 class F at 'BBB+';

--$16,900,000 class G at 'BBB';

--$35,100,000 class H at 'BBB-';

--$13,000,000 class J at 'BB+';

--$14,950,000 class K at 'BB';

--$9,100,000 class L at 'BB-';

--$34,450,000 class M at 'B+';

--$16,250,000 class N at 'B';

--$6,500,000 class O at 'B-'.

Deal Summary:

Wachovia CRE CDO is a revolving commercial real estate cash flow collateralized debt obligation (CDO), which closed on July 11, 2006. It was incorporated to issue $1,300,000,000 of floating-rate notes and preferred shares. Since close, 38 loans have been added to the pool and 18 have paid off, resulting in a net increase of 20 loans totaling $173.58 million or a 13.3% increase to the CDO par balance (including related future funding obligations). Based on the March 16, 2007 effective date trustee report and Fitch categorization, the CDO was invested in a portfolio of commercial mortgage whole loans and A-notes (80.3%), B-notes (6.3%), mezzanine loans (2.6%), and cash (10.8%). The CDO is also permitted to invest in commercial mortgage backed securities (CMBS), commercial real estate (CRE) CDOs, REIT debt and synthetic assets.

The collateral manager is Structured Asset Investors, LLC (SAI), a wholly owned subsidiary of Wachovia Corporation. An affiliate, Wachovia Bank N.A.'s Structured Finance Group (SFG), is serving as sub-advisor. SFG is responsible for selecting assets and monitoring the portfolio. This CDO has a five year reinvestment period, during which if all reinvestment criteria are satisfied, principal proceeds may be used to invest in substitute collateral. The reinvestment period ends in September 2011.

Collateral Asset Manager:

SFG focuses on providing non-recourse, transitional and high leverage capital to Wachovia's commercial real estate customer base. SFG is housed in the corporate and investment banking group, specifically within the fixed income division's real estate capital markets group. SFG is rated a 'CAM 2' commercial real estate loan (CREL) CDO Asset Manager. SFG is currently staffed by 20 experienced commercial real estate professionals. The current outstanding balance of the SFG investment portfolio is approximately $3.9 billion. The unit benefits from the commercial bank's robust internal procedures and controls. Additionally, the unit's lending activities are supported by the bank's commercial mortgage loan servicing units, which carry Fitch ratings of 'CPS2+', 'CMS2', and 'CSS2'.

Performance Summary:

As of the March 2007 trustee report, the CDO has maintained its original cushion of 6% as of the date the deal was rated. The Fitch poolwide expected loss (PEL) is 19.875% compared to the covenant of 25.875%. Although the diversity of the portfolio has improved, the 38 loans of approximately $585.7 million (45.1% of the total portfolio) that have been added to the deal since close currently have a higher expected loss (21.5%) than that of the original loans as they are in the beginning stages of their business plans. As expected, the original loans in the portfolio have improved as those assets have moved towards stabilization, resulting in a lower expected loss of 18.125%.

Although the cushion is below average for CREL CDOs, the portfolio is well diversified. Additionally, the expectation is that the portfolio will continue to be weighted in whole loans and A-notes and be secured by traditional property types. Wachovia's CREL origination platform is diverse and well established. As a result, the expectation is that SFG will be able to manage the portfolio within more narrowly defined parameters compared with other CREL CDOs.

At close, the CDO was 75.88% (985.5 million) ramped. As of the effective date, the CDO is 80% invested in assets with an additional 9% of the par balance allocated to delayed funding obligations. Based on the amount invested, the pool has migrated towards a greater percentage of whole loans and A-notes and a slightly less percentage of B-notes and mezzanine loans.

The weighted average spread (WAS) of outstanding loan balances decreased since close to 2.7% from 3.2%; however the WAS still remains above the covenant of 1.5%. On the other hand, the weighted average coupon (WAC) has increased slightly to 7.5% from 7.3% at close. However the percent of fixed rate loans is only 1.7%. These loans are unhedged, but the percent is well within the maximum covenanted bucket percentage of unhedged fixed rated loans. The weighted average life (WAL) has remained unchanged from 1.7 years at close, which continues to imply that the loans will fully turnover during the reinvestment period.

The over-collateralization (OC) ratios of all classes have remained stable since close while the interest coverage (IC) ratios have improved over the same period. The improvement in the IC ratios is attributed to the ramp up of $585.7 million in loans since close, for a net increase of $173.58 million when accounting for payoffs. Both ratios are above their covenants as of the March 2007 effective date trustee report.

Collateral Analysis:

One condo conversion loan (3.77% of the CDO) on a property located in Florida was purchased out of the CDO at par in December. The condo conversion was not performing as expected due to slow sales and was deemed a credit risk security for the months of October and November 2006, followed by a designation as a 'Defaulted Security' in December 2006.

The portfolio's largest asset type exposure continues to be multifamily, 31.2% of the CDO balance. The second largest asset type exposure is office at 27.7%. All property type concentrations are within the covenants.

The pool has above average loan diversity relative to other CRE CDOs. The pool currently consists of 73 loans and the Fitch LDI score is 201, compared to the covenant of 400. No loan represents more than 7% of the ramped portfolio. The CDO is well within all of its geographic location covenants with the largest exposure 31% located in California.

For a summary of the Fitch Loans of Concern and the 10 largest loans, please refer to the 'Wachovia Real Estate CDO 2006-1 CREL Surveyor Snapshot' on the Fitch Research web site, which will be available beginning April 26, 2007.

Rating Definitions:

The ratings of the class A and B notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class C, D, E, F, G, H, J and K notes address the likelihood that investors will receive ultimate interest and deferred interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.

Upgrades during the reinvestment period are unlikely given the pool could still migrate to the PEL covenant. The Fitch PEL is a measure of the hypothetical loss inherent in the pool at the 'AA' stress environment before taking into account the structural features of the CDO liabilities. Fitch PEL encompasses all loan, property, and poolwide characteristics modeled by Fitch.

Ongoing Surveillance:

Fitch will continue to monitor and review this transaction for future rating adjustments. The surveillance team will conduct a review on a quarterly basis. Additional deal information and historical data are available on the Derivative Fitch web site at www.derivativefitch.com. For more information on the Fitch Rating Methodology for CREL CDOs, see 'Rating Methodology for U.S. Commercial Real Estate Loan CDOs' dated Sept. 25, 2006 and also available at www.derivativefitch.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.derivativefitch.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.