Fitch Affirms Prima Capital CRE Securitization 2006-1, Ltd./Corp.; Assigns Outlooks

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed all classes of Prima Capital CRE Securitization 2006-1, Ltd./Corp. (Prima 2006-1) and assigned the following Rating Outlooks, as shown below:

--$280.3 million class A-1 affirmed at 'AAA' Outlook Stable;

--$64.0 million class A-2 affirmed at 'AAA' Outlook Negative;

--$27.8 million class B affirmed at 'AA+' Outlook Negative;

--$22.3 million class C affirmed at 'A+' Outlook Negative;

--$16.7 million class D affirmed at 'A-' Outlook Negative;

--$18.1 million class E affirmed at 'BBB+' Outlook Negative;

--$12.5 million class F affirmed at 'BBB' Outlook Negative;

--$9.7 million class G affirmed at 'BBB-' Outlook Negative;

--$13.9 million class H affirmed at 'BB' Outlook Negative;

--$15.3 million class J affirmed at 'B' Outlook Negative; and

--$5.6 million class K affirmed at 'B-' Outlook Negative.

Fitch has affirmed all classes despite a net negative migration in the credit view of the portfolio. This credit metric decline is partially offset by paydowns that resulted in increased credit enhancement to the classes. However, Fitch assigned Negative Outlooks on classes A-2 through K due to failure of the Fitch stress testing. Rating Outlooks reflect the likely direction of any rating changes over the next one to two years. The increase in PEL is primarily attributed to the application of Fitch's interim surveillance methodology on the structured finance portion of the collateral (13.9%); the application of Fitch's updated corporate criteria on the real estate investment trust (REIT) debt portion of the collateral (12.5%); Fitch's revised view on the ability of a multifamily property located in San Francisco, California (12.1%) to achieve its stabilization plan by the loan's maturity; and the downgrade of two underlying REIT debt securities (3.8%). The other commercial mortgage loans in the pool have generally show stable performance.

This transaction remains Under Analysis reflecting the potential for ratings to be impacted by the proposed change to Fitch's rating methodology for CDOs with exposure to all types of structured finance assets, as announced on Oct. 14, 2008.

For CREL CDOs, a Negative Outlook may be assigned to any class that fails Fitch's stress testing. Fitch's stress testing assumes various property value declines for each rating stress. Based on these results, any loan whose loan-to-value ratio is greater than 100% is assumed to default with the recovery calculated based on the property value in that rating stress.

Deal Summary:

Prima 2006-1 is a static cash flow commercial real estate (CRE) collateralized debt obligation (CDO) that closed on Nov. 6, 2006. As of the Sept. 24, 2008 trustee report and based on Fitch categorizations, the CDO was substantially invested as follows: B-notes (39.1%), CRE mezzanine loans (18.2%), commercial mortgage whole loans (16.3%), REIT debt (12.5%), CRE CDOs (11.1%), and CMBS (2.8%). The B-notes category includes CMBS rake bonds.

The portfolio was selected and is monitored by Prima Capital Advisors, LLC. Prima 2006-1 was fully ramped at closing and has no reinvestment period.

Performance Summary:

Since issuance, the CDO has paid down by $53.0 million (9.5%); all to the class A-1 (15.9% paydown of the class). Additionally, three rake bonds (4.4%) secured by the General Motors Building from the COMM 2005-LP5 transaction have fully defeased.

Since Fitch's last review in Sept. 2007, the as-is PEL has increased to 31.375% from 19.875%. The increase in PEL is primarily attributed to the application of Fitch's interim surveillance methodology on the structured finance portion of the collateral (13.9%); the application of Fitch's updated corporate criteria on the real estate investment trust (REIT) debt portion of the collateral (12.5%); Fitch's revised view on the ability of a multifamily property located in San Francisco, California (12.1%) to achieve its stabilization plan by the loan's maturity; and the downgrade of two underlying REIT debt securities (3.8%).

Since last review, the credit quality of the REIT debt collateral has worsened due to downgrades on two of the underlying securities (3.8%). On Oct. 6, 2008, the REIT debt issued by iStar Financial (2.6%) was downgraded to 'BB' from 'BBB' at the last review and currently remains on Outlook Negative by Fitch. Additionally, the REIT debt issued by Duke Realty (1.2%) was downgraded to 'BBB' from 'BBB+'. For modeling purposes, ratings on Outlook Negative are notched downward by one rating.

Also, since the last review, one underlying CMBS bond (JPMCC 2001-KP Class C) (2.5%) from a single borrower transaction secured by Kings Plaza, a regional mall in Brooklyn, New York, was upgraded to 'AA' from 'A'. For modeling purposes, all CMBS rake bonds in the pool (11.4%) are treated as CRE loans. The CDO also holds four classes from Prima Capital CDO 2005-1 (11.1%), another CRE CDO transaction. There is little overlap between the subject transaction and this previously issued CRE CDO.

The commercial real estate loans within the portfolio have exhibited stable performance. The largest loan in the portfolio (15.7%), which is secured by an office building in Manhattan, is 96.7% leased to a long term 'AA-' credit rated tenant whose lease extends past the loan's initial maturity. The second and third largest loans are secured by properties currently in a state of transition. One of those properties (12.3%) is an office complex located in Hamilton, New Jersey that has undergone significant lease up since its recent conversion from a manufacturing facility. The other property (12.1%) is a rent controlled multifamily property located in San Francisco, California, currently undergoing renovations to allow for increased rents to market. Given the loan just recently exercised its second loan extension option and has only one more remaining, Fitch revised its view toward the property's potential stabilization levels as leases have been only rolling over at a natural turnover rate rather than at an aggressive leasing schedule. Further, renovations have only been completed on approximately 10% of the units.

There are no overcollateralization or interest coverage ratios within this transaction.

Collateral Analysis:

As of the September 2008 trustee report and per Fitch categorizations, the pool consists of 73.6% CRE loans and 26.4% rated securities. Based on Fitch's categorizations of the CRE loans, office properties comprise the largest percentage at 46.2%. The office loans are primarily secured by buildings in the major metropolitan areas; 32.4% of which are located in New York City, Chicago, and Boston. Multifamily properties comprise the second largest percentage at 12.3%, with 12.1% located in San Francisco, California.

The portfolio's weighted average coupon (WAC) is 6.04%. The Fitch Loan Diversity Index (LDI) is 885, which represents below average diversity compared to other CRE CDOs. The top three loans comprise 42% of the portfolio.

For a summary of the Fitch Loans of Concern and the 10 largest assets, please refer to the Prima Capital CRE Securitization 2006-1 CREL Surveyor Snapshot, which will be available beginning Oct. 30, 2008, on the Fitch website www.fitchratings.com.

Asset Manager:

Prima Capital Advisors, LLC was formed in 2003 by the key principals, Gregory White and Steven Copulsky, with their purchase of Schroder Mortgage Associates, an investment advisory firm that specialized in commercial mortgage investments. Prior to the transaction's closing, Prima Capital Advisors managed approximately $1.1 billion on the behalf of a number of large pension funds. All client servicing and financial reporting is subcontracted to Midland Loan Services. Midland is rated 'CMS1' and 'CSS1' by Fitch as a master and special servicer, respectively.

Ratings Definition:

The ratings of the class A-1, A-2 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.

Fitch performs property value decline stress testing on the transaction's liabilities. To the extent investment grade rated bonds could be impaired by a 25% property value decline, classes could be assigned Negative Outlooks, placed on Rating Watch Negative, or downgraded. 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.

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 at least a 15% change in the collateral composition, or semi-annually.

For more information on the Fitch Rating Methodology for CRE loan CDOs, see 'Rating Methodology for U.S. Commercial Real Estate Loan CDOs' dated Dec. 20, 2007, which is also available at www.fitchratings.com.

Fitch introduced Rating Outlooks for U.S. structured finance in September 2008 to provide investors with forward-looking analysis for a structured finance tranche's credit performance. Fitch's Rating Outlook indicates the likely direction of any rating change over a one- to two-year period and may be Positive, Negative, Stable or, occasionally, Evolving. More information is available in Fitch's Sept. 11, 2008 report 'Introducing Rating Outlooks for U.S. Structured Finance Bonds'.

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.