NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed all rated classes of FMC Real Estate CDO 2005-1 Ltd. (FMC 2005-1). A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The affirmations are due to the relatively stable performance and the credit quality of the remaining collateral. Despite the deleveraging of class C, the ratings and Negative Outlooks reflect concern over the CDO's ability to continue to make timely interest payments. Fitch's base case loss expectation, which incorporates prospective views regarding commercial real estate market values and cash flow declines, is 46%.
Since Fitch's last rating action, class C received $33.4 million in paydown. Although Fitch expects class C to ultimately recover its full principal and interest payments even in high stress scenarios, interest proceeds may become insufficient to cover the timely interest due on a monthly basis because of the high default rate of the underlying collateral. Currently, only two loans (27.5% of the pool) are paying interest on a current basis; both of these assets are underperforming and located in weak markets.
FMC 2005-1 is a commercial real estate (CRE) CDO managed by SCFFI GP LLC, an affiliate of Five Mile Capital. The portfolio is concentrated, with only nine exposures remaining. Since Fitch's last rating action, three assets (with a par balance of $67.9 million) paid off or were disposed of with $35 million in realized losses. Defaulted assets now represent 72.5% of the pool compared to 79% during the last rating action. In addition, 66.6% of the remaining collateral is real estate owned (REO).
Under Fitch's methodology, 100% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. Modeled recoveries are approximately 53.7%.
The largest contributor to Fitch's base case loss expectation is a junior equity position in an REO asset (10.8%) that is a 1.3 million-square foot (sf) regional mall located in Bloomingdale, IL. Fitch modeled a full loss on the CDO position given its estimated value below that of the senior equity position.
The next largest contributor to Fitch's base case loss expectation is a first mortgage (17.4%) on a two-building office property comprising 230,650 sf, located in the Detroit suburb of Troy, MI. The property's occupancy has remained below 70% and the submarket suffers from a high vacancy rate.
The third largest contributor to Fitch's base case loss expectation is an REO asset (7.8%) consisting of a 162-acre residential development site located in Madera County, CA.
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. The transaction was not cash flow modeled based on the limited available interest received from the assets, the majority of which are defaulted. Fitch used a deterministic approach to evaluate the impact of further interest payment defaults of the collateral.
The 'CCC' ratings for classes E and F are 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 each class's credit enhancement.
RATING SENSITIVITY
All classes are subject to further downgrades should additional losses be realized. Negative outlooks reflect the high concentration of defaulted assets and the potential for missed interest payments.
Fitch affirms the following classes:
--$6.7 million class C at 'BBsf'; Outlook Negative;
--$34.1 million class D at 'Bsf'; Outlook to Negative from Stable;
--$13.2 million class E at 'CCCsf'; RE 100%;
--$22 million class F at 'CCCsf'; RE 30%
The class A-1, A-2 and B notes have paid in full. Fitch previously withdrew the ratings of classes G and H following the surrender and cancellation of those certificates.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (Nov. 25, 2013);
--'Global Rating Criteria for Structured Finance CDOs' (Sept. 12, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821
Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723059
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718027
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834862
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