Jan 24 - Fitch Ratings has affirmed all classes of Talmage Structured Real
Estate Funding 2005-2 Ltd./LLC (Talmage 2005-2) reflecting Fitch's base case
loss expectation of 35.9%. Fitch's performance expectation incorporates
prospective views regarding commercial real estate market value and cash flow
declines. A detailed list of rating actions follows at the end of this release.
SENSITIVITY/ RATING DRIVERS
While the expected loss expectation has increased since last review, the
affirmations reflect improved credit enhancement to the rated classes. The
increased credit enhancement is the result of 8.5% paydown of the transaction's
liabilities. Since the last rating action, one asset repaid in full, while
others have amortized.
The portfolio is concentrated with only nine assets remaining and is comprised
of non-senior CMBS tranches and B-notes (67.7%) and whole loans/A-notes (32.3%).
The current percentages of defaulted assets and Loans of Concern is, 18.7% and
12.2%, respectively, compared to 49.5% and 11.5%, at the last rating action.
Talmage 2005-2 is a commercial real estate collateralized debt obligation (CRE
CDO) managed by Talmage, LLC. The transaction exited its reinvestment period on
Aug. 18, 2010. As of the December 2012 trustee report, the class E
overcollateralization test is failing.
Because the collateral pool is concentrated, Fitch assumed additional cash flow
stresses and that 100% of the portfolio will default in the base case stress
scenario, defined as the 'B' stress. In this scenario, the modeled average cash
flow decline is 5% from, generally, trailing 12-month second or third quarter
The largest component of Fitch's base case loss expectation is related to a
defaulted A-note loan (11.1%) secured by a development site in Orlando, FL. The
property is currently in foreclosure. Fitch modeled a significant loss in the
base case scenario.
The next largest component of Fitch's base case loss expectation is related to a
subordinate mortgage participation (7.6%) secured by three gaming properties
located in Atlantic City, NJ; Robinsonville, MS; and Tunica, MS. The loan is
90-plus days delinquent. The estimated value of the portfolio is less than the
senior debt amount. Fitch modeled a term default and a full loss on this
overleveraged position in the base case scenario.
This transaction was analyzed according to the '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. Cash flow
modeling was not performed as part of the analysis due to the significant
cushion between the base case expected loss of the transaction and the credit
enhancement of each class. The credit enhancement for the classes B through E is
consistent with the ratings listed below.
The rating on class F is based on a deterministic analysis that 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 the class' credit enhancement.
Fitch has affirmed the following and assigned an RE as indicated:
--$24.3 million class B at 'BBBsf'; Outlook Stable;
--$27.3 million class C at 'BBsf'; Outlook Stable;
--$22.5 million class D at 'CCCsf'; RE 100%.
--$11.4 million class E at 'CCCsf'; RE 100%.
--$12.9 million class F at 'CCsf'; RE 15%.
Classes S and A have paid in full.
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 Related Research:
--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate
Transactions'(Nov. 29, 2012);
--'Global Structured Finance Rating Criteria' (June. 6, 2012).
Applicable Criteria and Related Research:
Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate
Global Structured Finance Rating Criteria