Fitch: Stuy Town/Peter Cooper Loan Performance Continues to Lag

NEW YORK--(Business Wire)--
Debt service reserves for The Stuyvesant Town/Peter Cooper Village loan are
likely to run out by the end of this year, according to recently completed
analysis by Fitch Ratings. In this scenario, a default on the loan is likely if
an equity infusion or recapitalization does not take place.

Pieces of the $3 billion pari passu Stuy Town loan are securitized in the
following transactions:

--WBCMT 2007-C30;

--COBALT 2007-C2;

--ML-CFC 2007-5;

--ML-CFC 2007-6.

Today, Fitch downgraded these four U.S. CMBS transactions due to the continued
underperformance of the Stuy Town loan and other loans in the transactions. The
outcome of the ongoing Stuy Town litigation may have future rating implications
for the four transactions.

'Based on current performance and the uncertainty surrounding ongoing
litigation, we do not expect property performance to improve sufficiently to
service the securitized portion of the $4.5 billion debt before reserves are
depleted', said Senior Director Adam Fox.

In addition to the securitized balance, there is an additional $1.5 billion of
mezzanine debt held outside the trust. For the year ended 2008, the servicer
reported debt service coverage ratio (DSCR) on the mortgage was 0.69 times (x),
as compared to the year ended 2007 DSCR of 0.55x. For first quarter-2009
(1Q'09), the servicer reported DSCR was 0.71x. As of July 2009, approximately
60% were rent-stabilized units and 40% were market units with a vacancy rate of
approximately 4.1%.

Fitch reviewed 1Q'09 financials, debt service reserve draws, and the most recent
unit conversion statistics for the Stuyvesant Town/Peter Cooper Village loan.
Cash flow generated from the property remains significantly below what is needed
to service the current outstanding debt, and the borrower continues to use debt
service reserves to cover operating shortfalls.

Capital expenditures for converting stabilized units to market rents have ceased
because of a moratorium on conversion imposed by the Court of Appeals as a
result of the litigation. While this has reduced capital expenditures, the use
of debt service reserves has increased because the Court also requires the
borrower to separately escrow the difference between stabilized and market rents
on former stabilized units. Previously, this difference was available for debt
service. Once debt service reserves have been depleted, the borrower has the
option to replenish them or cover the operating shortfalls out of pocket.

Fitch's analysis is based on updated expectations of limited unit turnover and
stabilized expenses. Based on this estimate of cash flow, losses could be as
high as 20% of the $3 billion A note balance. However, although a default is
expected in the near term, a lengthy workout is also expected. While final
resolution for this lawsuit may not occur for several months or years, Fitch
believes the ultimate value of the properties will be, in large part, determined
by the lawsuit's resolution.

Estimates of potential losses would vary greatly and are difficult and
speculative today. Given the many uncertainties surrounding the loan that will
influence ultimate recovery, including the resolution of the lawsuit, future
market conditions, and the remaining seven years until the 2016 maturity, Fitch
is only recognizing a portion of potential future losses in its rating actions
today.

Recognized losses of $133 million include the estimated costs associated with
expected special servicing fees, advances and potential legal fees. An adverse
legal ruling against the sponsor's appeal would result in a significant increase
to Fitch's recognized loss and result in additional downgrades. Fitch will
continue to monitor this loan and adjust recognized losses as events transpire,
including the lawsuit's resolution.

As of August 2009, the General Reserve and Replacement Reserve have been
essentially depleted. The Debt Service Reserve balance has decreased to $49.3
million from $400 million at issuance. The reserve draws are being used to
service the debt on both the securitized mortgage and the mezzanine 1 through 9
notes. Mezzanine notes 10 and 11 are deferring interest. According to Fitch's
calculations and the 2009 restated budget, the borrower will deplete the
remaining debt service reserves at the end of 2009.

In March 2009, the New York State (NYS) Supreme Court overturned the sponsors'
motion to dismiss claims surrounding the deregulation of units. A week later,
the NYS Court of Appeals ordered a stay on this decision pending a hearing by
the Court of Appeals. During the stay, the sponsor is required to deposit the
differential between legal stabilized rent and market rent collected from
tenants into an escrow account. The sponsor does not have use of these funds
while the stay is in effect. The current balance of this escrow account is
approximately $10 million and the estimated monthly deposit into this account is
$2.5 million.

The timing on the resolution of the court case is uncertain and oral arguments
are expected to be heard, by the NYS Court of Appeals at the earliest, in
September. A ruling by the Court of Appeals will not necessarily resolve the
litigation, as the ruling could send the case back to lower courts. While a
final outcome for this lawsuit may not occur for several months or years, Fitch
believes the ultimate value of the properties will be, in large part, determined
by the lawsuit's resolution.

Stuyvesant Town/Peter Cooper Village is comprised of 56 multistory buildings,
situated on 80 acres, and includes a total of 11,227 apartments. The loan
sponsors, Tishman Speyer Properties, LP and BlackRock Realty, acquired the
property with the intent of converting rent-stabilized units to market rents as
tenants vacated the property.

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.

Fitch Ratings
Adam Fox, 212-908-0869 (New York)
Gregg Katz, 312-606-2343 (Chicago)
Media Relations:
Sandro Scenga, 212-908-0278 (New York)
sandro.scenga@fitchratings.com

Copyright Business Wire 2009