Fitch Takes Various Actions on 30 Small-Balance Commercial Transactions

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken various rating actions on 266 classes in 30 small- balance commercial transactions. The transactions reviewed were issued between 2003 and 2008 with collateral consisting of fixed- and adjustable-rate mortgage loans secured by senior liens on commercial, multifamily and mixed-use properties and unimproved land.

A spreadsheet detailing Fitch's rating actions on the reviewed transactions can be found on Fitch's web site at 'www.fitchratings.com' by performing a title search for 'Small Balance Commercial Rating Actions for Dec. 1, 2011'.

Fitch's rating actions are as follows:

--94 classes affirmed;

--172 classes downgraded.

The majority of the downgrades affected classes rated 'BBBsf' or lower prior to the review. The negative rating actions primarily reflect increased collateral loss expectations due to rising loss severities on liquidated loans and also reflect reduced interest cashflow available to pay bondholders due to a high number of loan modifications.

The Bayview Commercial Asset Trust (BCAT) transactions issued in 2008 are particularly sensitive to a reduction in interest collected from loan modifications due to structures which do not allow principal collections to be used to pay bond interest. In addition to high modification rates (an estimated 43% of the pools on average), swap counterparty payments, payments to the interest-only classes, and interest-losses have resulted in recent interest shortfalls for some classes and have increased the risk of a future interest shortfall for the remaining classes. A number of BCAT classes from the 2008 vintage incurred rating downgrades due to an actual or expected interest shortfall despite an expectation of full principal recovery in highly-rated stress scenarios.

The principal distribution priority was also a consideration in the rating actions. All of the BCAT transactions issued prior to 2008 and the Lehman Brothers small-balance transactions issued in 2005 are currently distributing principal on a pro-rata basis to all classes. The pro-rata pay structure is expected to continue to decrease the credit enhancement of the senior classes over time (as subordinate classes receive principal payments) and increase the risk of a principal writedown. To account for the high modification activity, which will likely delay the timing of loan losses, Fitch analyzed the bonds with a longer default curve than in prior small-balance CMBS reviews. Transactions with pro-rata structures were more vulnerable to writedowns in scenarios with delayed loss-timing curves, and that sensitivity was reflected in negative rating actions for some classes.

To determine the base-case default projection for the mortgage pool, Fitch used the vintage average default assumptions for the Alt-A RMBS sector because of the similarities in credit profiles and delinquency to-date. The default expectations were adjusted for each pool's delinquency distribution and performance. The loss-severity assumptions reflected actual severities of loans that were liquidated over the past 12 months. After determining each underlying pool's projected base-case and stressed scenario mortgage loss assumptions, Fitch performed cash flow analysis to determine the risk of principal loss or interest shortfall for each class.

All of the actions taken were reviewed by a committee of Fitch analysts. The spreadsheet 'Small Balance Commercial Rating Actions for Dec. 1, 2011' provides the contact information for the performance analyst.

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:

--'U.S. RMBS Surveillance Criteria' (July 8, 2011);

--'Global Structured Finance Rating Criteria' (Aug. 4, 2011);

--'Criteria for Rating Caps in Global Structured Finance Transactions' (Aug 9, 2011)

--'Counterparty Criteria for Structured Finance Transactions' (March 14, 2011);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 21, 2011).

Applicable Criteria and Related Research: Small Balance Commercial Rating Actions for Dec. 1, 2011

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659190

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605426

Counterparty Criteria for Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605425

Criteria for Rating Caps in Global Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648672

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 Inc.Committee ChairpersonGrant Bailey, +1-212-908-0544Managing Director1 State Street Plaza, New York, NY 10004orMedia RelationsSandro Scenga, +1-212-908-0278[email protected]

Source: Fitch Ratings

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