Sept 28 () - Fitch Ratings has upgraded one, downgraded two, and affirmed
eight classes of RFC CDO 2006-1, Ltd./LLC (RFC 2006-1) reflecting Fitch's base
case loss expectation of 66.4%. Fitch's performance expectation incorporates
prospective views regarding commercial real estate market value and cash flow
declines, and factors in concerns regarding the outsourced third party
management of the collateralized debt obligation (CDO). A detailed list of
rating actions follows at the end of this release.
The upgrade to class A-1 reflects an increase in credit enhancement due to
significant paydowns since the last rating action. The transaction has paid down
by $131.8 million (22% of the original transaction balance) since the last
rating action, totaling $347.5 million (58%) since issuance. The paydowns were
due to asset repayments, asset disposals, and interest diversion as a result of
the failure of all overcollateralization (OC) tests. Five loans and one
commercial mortgage-backed security (CMBS) bond paid off in full. In addition,
approximately $22.8 million is currently held as principal cash. The Stable
Outlook on class A-1 reflects the class' senior position in the capital stack.
Since Fitch's last rating action and as of the September 2012 trustee report,
two CMBS bonds and one mezzanine loan have realized losses totaling $27.2
million. Defaulted assets and Fitch Loans of Concern have increased to 52.1% and
15.3%, respectively, compared to 31.9% and 11.4%, respectively, at the last
rating action. The weighted average rating of the CMBS bonds has remained the
same at 'CCC+/CCC'.
As of the September 2012 trustee report and per Fitch categorizations, the CDO
was substantially invested as follows: 39.5% whole loan/A-notes, 27.8% CMBS,
21.4% mezzanine loans, 9.7% principal cash, and 1.6% B-notes.
Under Fitch's methodology, approximately 80.5% of the portfolio is modeled to
default in the base case stress scenario, defined as the 'B' stress. In this
scenario, the modeled average cash flow decline is 10.5% from, generally,
third-quarter 2012. Fitch estimates that average recoveries will be low at
The largest component of Fitch's base case loss expectation is the modeled loss
on the CMBS portion of the collateral (27.8% of the pool), where the majority of
the ratings are speculative grade.
The second largest component of Fitch's base case loss expectation is a whole
loan (15%) secured by a 72-room boutique hotel located in the Times Square area
of New York City. Performance has improved since the last rating action, but
remains significantly below underwritten expectations. Fitch modeled a
significant loss in its base case scenario.
The third largest component of Fitch's base case loss expectation is a mezzanine
position (8.6%) secured by interests in a 575-room full-service hotel located in
Tucson, Arizona. Fitch modeled a full loss on this highly-leveraged position in
its base case scenario.
This transaction was analyzed according to 'Surveillance Criteria for U.S. CREL
CDOs and CMBS Large Loan Floating-Rate Transactions', which applies stresses to
property cash flows and debt service coverage ratio tests to project future
default levels for the underlying portfolio. Recoveries are based on stressed
cash flows and Fitch's long-term capitalization rates. The CMBS bonds were
analyzed in Fitch's Portfolio Credit Model according to 'Global Rating Criteria
for Structured Finance CDOs'.
The ratings for classes A-2 through K are based on a deterministic analysis
which considers Fitch's base case loss expectation for the pool and the current
percentage of defaulted assets and Fitch Loans of Concern, factoring in
anticipated recoveries relative to each class' credit enhancement, as well as
the likelihood for OC tests to cure.
RFC 2006-1 is a commercial real estate CDO. The transaction exited its
reinvestment period in April 2011. The CDO's asset manager is Realty Finance
Corp. (RFC). As stated in a public press release in February 2011, RFC entered
into an agreement to outsource its asset management functions for the CDO to
Waldron H. Rand & Company, P.C. (Waldron). Waldron is an accounting firm with
real estate experience and its capabilities are consistent with the current
ratings assigned to the notes of the transaction. The transaction was formerly
known as CBRE Realty Finance CDO 2006-1, Ltd./LLC.
Fitch has upgraded the following class:
--$27.5 million class A-1 to 'BBsf' from 'Bsf'; Outlook Stable.
Fitch has downgraded the following classes:
--$9 million class E to 'Csf' from 'CCsf'; RE 0%;
--$10.5 million class F to 'Csf' from 'CCsf'; RE 0%.
Fitch has affirmed the following classes:
--$33 million class A-2 at 'CCCsf'; RE 100%;
--$34.5 million class B at 'CCCsf'; RE 100%;
--$15 million class C at 'CCCsf'; RE 15%;
--$13.5 million class D at 'CCsf'; RE 0%;
--$13.5 million class G at 'Csf'; RE 0%;
--$4.5 million class H at 'Csf'; RE 0%;
--$24 million class J at 'Csf'; RE 0%;
--$20.3 million class K at 'Csf'; RE 0%.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and(New York Ratings Team)