Fitch Ratings Affirms Guggenheim Structured Real Estate Funding 2005-2

NEW YORK--(BUSINESS WIRE)--Fitch affirms all classes of Guggenheim Structured Real Estate Funding 2005-2, Limited and Guggenheim Structured Real Estate Funding 2005-2, LLC (Guggenheim 2005-2) as follows:

--$5,000,000 class S fixed-rate at 'AAA';

--$163,800,000 class A floating-rate at 'AAA';

--$31,300,000 class B floating-rate at 'AA';

--$27,300,000 class C deferrable interest floating-rate at 'A';

--$22,543,000 class D deferrable interest floating-rate at 'BBB';

--$10,700,000 class E deferrable interest floating-rate at 'BBB-';

--$10,000,000 class F fixed-rate at 'BB'.

Deal Summary:

Guggenheim 2005-2 is a revolving commercial real estate cash flow collateralized debt obligation (CDO) that closed on Aug. 25, 2005. As of the May 2007 trustee report and based on Fitch categorization, the CDO was substantially invested as follows: commercial mortgage whole loans/A-notes (8.2%), B-notes (34.5%), commercial real estate mezzanine loans (25.4%), bank loans to real estate operating companies (REBLs; 20.1%), and commercial mortgage-backed securities (CMBS;11.8%). The CDO is also permitted to invest in credit tenant lease (CTL) loans and commercial real estate CDO (CRE CDO) securities.

The portfolio is selected and monitored by Guggenheim Structured Real Estate Advisors, LLC (GSREA). Guggenheim 2005-2 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 August 2010.

Collateral Asset Manager:

Guggenheim Structured Real Estate (GSRE), through its two private equity funds, is a private investor in commercial real estate debt, specializing in high-quality income-producing US properties with experienced sponsorship. GSRE funds are managed by GSREA. Both the funds and GSREA are affiliated with Guggenheim Partners, LLC (GP), a diversified financial services firm with more than 525 employees and over $125 billion of assets under supervision. The two GSRE equity funds have over $1.1 billion of private equity and have made approximately $6.0 billion of investments. None of the funds' investments have had losses or delinquencies.

Fitch rates GSREA as a 'CAM2' U.S. Commercial Real Estate CDO Asset Manager. GSREA has ten experienced real estate and investment professionals on staff, three of whom have prior commercial real estate loan workout experience. GSREA benefits from its affiliation with GP with respect to real estate markets information flow, CDO administration, and back office support. Generally, GSRE investments are serviced by rated CMBS servicers. For more details refer to the Derivative Fitch Asset Manager Profile on Guggenheim Structured Real Estate available on the Derivative Fitch web site www.derivativefitch.com.

Performance Summary:

Guggenheim 2005-2 closed and became effective on August 25, 2005. Since Fitch's last review in August 2006, the as-is poolwide expected loss (PEL) has improved slightly to 22.125% from 22.750%. The CDO has above average reinvestment flexibility relative to other CRE CDOs with 15.875% of cushion based on the modeled stressed PEL of 38.00%. Although PEL cushion is above average, the pool's weighted average spread (WAS) and weighted average coupon (WAC) are considered tight with 0.20% and 0.30% cushion, respectively. 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.

The improvement in the as-is PEL is primarily due to an increase in holdings of senior secured real estate banks loans, which now comprise 20.1% of the CDO. Since Fitch's last review, the CDO has added two real estate bank loans, Intrawest (8.9%) and General Growth Properties (1.2%), and increased its position in the Toys 'R' Us senior secured credit facility to 10.0% of the portfolio. The Trizec Credit Facility (1.7%) repaid in full in October 2006. As of the last review, the securities and bank loans of the CDO, which have grown to 31.8% from 21.7% of the portfolio, have a better weighted average rating factor (WARF) compared to August 2006, and remain in the 'BB-/B+' rating category.

Additionally, the CDO added two commercial real estate loan (CREL) assets (10.2%): the junior mezzanine position of the Lord & Taylor portfolio (5.3%) and the third mezzanine position in the Kyo-Ya/Cerberus portfolio (4.9%), replacing three assets that have repaid since the last review. The repaid assets include the Viceroy Hotel, the Marriott Waikiki, and One Beacon Street. Most of the weighted average expected losses by property type remained flat since the last review. The Fitch modeled expected loss for the office properties, however, increased as a result of the repayment of One Beacon Street, a high quality 34-story office tower located in Boston. The overall weighted average Fitch expected loss for CREL assets is therefore modestly higher than the average expected loss at the time of the last review.

The CDO is in compliance with all its reinvestment covenants. The WAS and WAC have remained constant since the last review at 2.40% and 5.32%, respectively. Approximately 8.3% of the pool is fixed rate. The weighted average life (WAL) has decreased to 3.4 years from 4.0 years at the August 2006 review, continuing to imply that the pool composition will fully turnover during the reinvestment period.

The over collateralization (OC) and interest coverage (IC) ratios of all classes have remained above their covenants, as of the March 2007 effective date trustee report.

Collateral Analysis:

Most of the CREL assets are junior participations, including B-notes and mezzanine debt. Only 8.2% of the portfolio (12.1% of CREL assets) is invested in whole loans/A-notes. Many of the subordinate loans are secured by interests in institutional quality assets with experienced sponsors. Additionally, most of the loans have Fitch stressed debt service coverage ratios (DSCR) above 1.0 x and loan-to-value ratios (LTV) below 100%.

As of the May 2007 trustee report, the CDO is within all property type covenants. Loans on retail properties, representing 32.9% of the portfolio including the Toys 'R' Us and GGP bank loans, are now the largest property type category. The concentration of retail properties has increased from 20.4% since the last review. The percentage of hotel assets has decreased since the last review to 26.9% from 36.1%. The hotel loans are secured by interests in 471 individual properties and include hotels in the luxury, upscale, and extended stay segments of the industry, which provides further diversity by hospitality type. The CDO is also within all of its geographic location covenants with the highest percentage of assets located in California at 13.1%. The portfolio continues to be geographically diverse.

The Fitch Loan Diversity Index is 685 compared to the covenant of 870, which represents below average diversity as compared to other CRE CDOs. No single obligor may represent more than $30.0 million (approximately 10.0% of the portfolio). Currently, the largest obligor represents $30.0 million of the deal.

As of the most recent trustee report, 11.8% of the pool is invested in CMBS. The transaction's current exposure consists of two large loan floating rate deals of 2005 vintage. The CMBS include the Class G tranche of the GS Mortgage Securities Corporation II, Series 2005-GSFL VII (GSMS 2005-GSFL VII) and the Class K tranche of Bank of America Large Loan, Series 2005 - ESH (BALL 2005-ESH) rated 'BBB-' and 'BB', respectively, by Fitch. The CDO has a maximum 40.0% bucket of CMBS, with a 10.0% cap on CMBS conduit securities.

For a summary of the Fitch Loans of Concern and the 10 largest loans, please refer to the Guggenheim Structured Real Estate Finance 2005-2 Surveyor Snapshot on the Derivative Fitch web site, which will be available beginning June 7, 2007.

Rating Definitions:

The ratings of the classes S, 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, and F 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.

Although reinvestment cushion is above average, upgrades during the reinvestment period are unlikely given the pool could still migrate to the PEL covenant.

Ongoing Surveillance:

Fitch will continue to monitor and review this transaction and will issue an updated Snapshot report after each committeed review. The surveillance team will conduct a review whenever there is approximately 15% change in the collateral composition or semi-annually. For more detailed information, please see the Guggenheim Structured Real Estate Finance 2005-2 CREL Surveyor Snapshot 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 September 25, 2006, which is 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.