Fitch Places 2 Classes of CSMC 2006-TFL2 on Watch Negative; Assigns Outlooks to Other Tranches

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed two classes of CSMC 2006-TFL2, commercial mortgage pass-through certificates on Rating Watch Negative, as follows:

--$14.1 million class MW-A at 'AA'; and

--$8.5 million class MW-B at 'A'.

In addition, Fitch has affirmed the following classes and assigns Rating Outlooks as follows:

--$305.1 billion class A-1 at 'AAA'; Outlook Stable;

--$536 million class A-2 at 'AAA'; Outlook Stable;

--Interest-only class A-X-1 at 'AAA'; Outlook Stable;

--Interest-only A-X-2 at 'AAA'; Outlook Stable;

--Interest-only class A-X-3 at 'AAA'; Outlook Stable;

--$41 million class B at 'AA+'; Outlook Stable;

--$41 million class C at 'AA'; Outlook Stable;

--$33 million class D at 'AA-'; Outlook Stable;

--$25 million class E at 'A+'; Outlook Stable;

--$19 million class F at 'A'; Outlook Stable;

--$19 million class G at 'A-'; Outlook Stable;

--$19 million class H at 'BBB+'; Outlook Stable;

--$20 million class J at 'BBB'; Outlook Stable;

--$22 million class K at 'BBB-'; Outlook Stable;

--$16.3 million class L at 'BBB-'; Outlook Negative.

The following classes are assigned Rating Outlooks and affirmed by Fitch and are non-pooled components of the related trust assets:

--$62.2 million class KER-A at 'AA-'; Outlook Stable;

--$44.2 million class KER-B at 'A'; Outlook Stable;

--$38.7 million class KER-C at 'A-'; Outlook Stable;

--$47.7 million class KER-D at 'BBB+'; Outlook Negative;

--$48.1 million class KER-E at 'BBB'; Outlook Negative;

--$64 million class KER-F at 'BBB-'; Outlook Negative;

--$4.7 million class SHD-A at 'AA+'; Outlook Stable;

--$4.5 million class SHD-B at 'AA'; Outlook Stable;

--$4.4 million class SHD-C at 'A+'; Outlook Stable;

--$3.4 million class SHD-D at 'A-'; Outlook Stable;

--$4.3 million class SHD-E at 'BBB-'; Outlook Stable;

--$11 million class BEV-A at 'BBB-'; Outlook Stable;

--$5.3 million class QUN-A at 'AA-'; Outlook Stable;

--$4.9 million class QUN-B at 'A'; Outlook Stable;

--$7.1 million class QUN-C at 'BBB'; Outlook Stable;

--$4.6 million class QUN-D at 'BBB-'; Outlook Stable;

--$7 million class ARG-A at 'BB'; Outlook Stable;

--$5.5 million class ARG-B at 'BB-'; Outlook Stable;

--$4 million class NHK-A at 'BBB-'; Outlook Stable.

The following classes are assigned Rating Outlooks and affirmed by Fitch and are non-pooled components of the trust assets:

--$376.8 million class SV-A1 at 'AAA'; Outlook Stable;

--$126 million class SV-A2 at 'AAA'; Outlook Stable;

--Interest-only SV-AX at 'AAA'; Outlook Stable;

--$61 million class SV-B at 'AA+'; Outlook Stable;

--$31 million class SV-C at 'AA'; Outlook Stable;

--$31 million class SV-D at 'AA-'; Outlook Stable;

--$30 million class SV-E at 'A+'; Outlook Stable;

--$31 million class SV-F at 'A'; Outlook Stable;

--$30 million class SV-G at 'A-'; Outlook Stable;

--$54 million class SV-H at 'BBB+'; Outlook Stable;

--$34 million class SV-J at 'BBB'; Outlook Stable;

--$39 million class SV-K at 'BBB-'; Outlook Stable.

Rating Outlooks reflect the likely direction of rating changes over the next one or two years.

Classes MW-A and MW-B have been placed on rating watch negative due to the upcoming final maturity of Metropolitan Warner Center (3.2%). The Metropolitan Warner Center loan is collateralized by 677 units within the condominium property located in Woodland Hills, CA. The subject was formerly an apartment complex that was converted into condominiums. Debt is paid down as unit sales are executed. The loan exercised its one-year extension option in July 2008 and has a final maturity on July 9, 2009. The pace of unit sales has fallen behind initial expectations and Fitch is concerned that sales proceeds may not be sufficient to pay off the debt at loan maturity. The original management company has been replaced and new management plans to focus on increased marketing efforts to bolster unit sales.

Class L has been assigned a Negative Outlook due to the concerns surrounding The Kerzner Portfolio and Metropolitan Warner Center.

Though classes KER-D, KER-E, and KER-F have been affirmed at the current rating levels, the Negative Outlooks are due to the potential future decline in performance of The Kerzner Portfolio (29.5%). The Kerzner Portfolio consists of a diverse portfolio of real estate including resort casinos, golf courses, timeshares, vacant waterfront land and ongoing construction projects. The portfolio is sponsored by Istithmar PJSC, Whitehall Funds, Kerzner Family, Colony Capital, Baron Funds and The Related Companies.

Occupancy, ADR and RevPAR as of Dec. 31, 2007, is 73%, $310, and $245, compared to the issuer's expectations of 81%, $323, and $262 at origination. The portfolio continues to stabilize as construction projects are completed at the Atlantis property, including the Phase III expansion which added a 600-room all-suite hotel tower, a 495-unit condominium hotel, approximately 40-acres of new water attractions, and the Dolphin Experience. While cash flow has improved from year-end (YE) 2006 to YE2007, there is concern that the performance expectations from origination may become increasingly difficult to achieve as the economy continues to face significant challenges. The impact the contracting economy is having on discretionary spending along with declines in business and leisure travel may limit future improvement to cashflow.

The rating affirmations are the result of stable pool performance since issuance, scheduled paydown, and ongoing stabilization of the underlying assets. As of the September 2008 distribution date, the transaction's aggregate principal balance has decreased 31% to $2.35 billion from $3.40 billion at issuance. Three loans, The Plaza Residential and Retail (23.8% of the initial pool balance) JP Morgan International Tower III (1.5%), and The Plaza CondoHotel and Hotel (1.1%) have paid in full.

The largest loan in the transaction, The Sava Healthcare Portfolio (35.9%), consists of two partially cross-collateralized and cross-defaulted loans: the Sava Portfolio, consisting of 169 properties and the Fundamental Portfolio, consisting of 28 properties. Occupancy as of April 15, 2008 is 85.6%, inline with issuance. The Sava Portfolio and the Fundamental Portfolio are bridge loans until the individual assets are refinanced through the HUD 232 Program, which insures mortgages that cover the construction, rehabilitation, purchase, and refinancing of nursing homes, intermediate care facilities, board and care homes, and assisted living facilities. The portfolio is sponsored by Rubin Schron, an experienced health care property operator. All of the Fitch rated classes related to the Sava Healthcare Portfolio are non-pooled components of the related trust.

Fitch reviewed servicer provided operating statement analysis reports for all of the loans in the transaction as well as updated sales reports for the condominium properties. Based on their stable performance since issuance the loans maintain their investment grade shadow ratings.

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.