Fitch Downgrades & Removes 3 Classes of ACT 2005-RR from Watch Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded three classes of ACT 2005-RR Depositor Corp. series 2005-RR, commercial mortgage-backed securities (CMBS) pass-through certificates, (ACT 2005-RR) as follows:

--$225 million class A-1FL to 'BBB' from 'AAA';

--$118 million class A-2 to 'BB' from 'AAA';

--$165.6 million class A-3 to 'B' from 'AAA'.

Additionally, Fitch has removed all downgraded classes from Rating Watch Negative, where they were originally placed on Jan. 16, 2008 and Dec. 12, 2007. The $294.7 million Retained Certificates are not rated by Fitch.

ACT 2005-RR is backed by commercial mortgage-backed securities (CMBS) B-pieces and closed Nov. 9, 2005. CMBS B-piece resecuritizations (also referred to as first loss CRE CDOs/ReREMICs) are CRE CDOs and ReREMIC transactions that include the most junior bonds of CMBS transactions. CWCapital Investment LLC selected the initial collateral and serves as the collateral administrator.

The collateral for this ReREMIC consists of high-yielding junior bonds of CMBS transactions. The underlying assets of the CMBS bonds, by their nature, face similar exposures to losses from any downturn in the commercial real estate market as well as refinancing risks at the assets' maturity dates. As a mitigant, however, the underlying CMBS transactions do have significant geographic, property type and tenant diversity.

While Fitch continues to believe investment grade CMBS will perform well even in a heightened stress environment, the risks facing first loss (unrated) and junior rated bonds within the capital structure of CMBS transactions have increased with expectations of a rise in commercial real estate defaults from current low levels. Even a relatively modest increase in CRE losses could be material for these CMBS B-piece resecuritizations.

In reviewing CMBS ReREMICs, Fitch has targeted expected losses in different rating stresses based on the quality of the underlying CMBS collateral. The overall expected losses reflect the single sector exposure, the concentrated nature of these portfolios, and the low expected recoveries upon bond default, especially for more junior and thinner classes of CMBS tranches. Additional ratings considerations include seasoning of underlying collateral, obligor diversity, actual bond performance and projected losses. The specific credit characteristics that are factored into Fitch's rating review are discussed below.

ACT 2005-RR is collateralized by all or a portion of 135 classes of fixed-rate CMBS in 42 separate underlying transactions. All performance and collateral information is based on the March 24, 2008 trustee report and discussions with the collateral administrator. The pool's obligor diversity is considered above-average for CMBS B-piece resecuritizations, and the vintage distribution of the CMBS collateral ranges from 1998 to 2004 (an average of 5.9 years of seasoning). Approximately 63.1% of the collateral is currently rated below 'B-' or not rated, and, therefore, is more susceptible to losses in the near-term. This concentration is one of the highest of all CMBS B-piece resecuritizations rated by Fitch. Overall, a significant portion of the collateral is below investment grade with only 1.8% investment grade. ACT 2005-RR holds 3.2% in the 'BB' category and 31.8% in the 'B' category.

The collateral has realized $250.8 million in losses to date, which represents 23.8% of the original collateral. Based on the original below 'B-' balance of $723.2 million, this loss rate equates to a 34.7% loss rate on the below 'B-' collateral, which is higher than other CMBS B-piece resecuritizations rated by Fitch. Additional losses are projected with $277.1 million of the underlying collateral currently 60 days or more delinquent, according to the current trustee report.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.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.