Fitch Upgrades One Class of Brascan 2005-2

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded one and affirmed one class of Brascan Structured Notes 2005-2 (Brascan 2005-2) reflecting Fitch's base case loss expectation of 69.5%. In addition, Fitch assigned a Positive Outlook to one of the classes. 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.

The upgrade to class D is the result of substantial paydown of the transaction's senior liabilities. Since the last rating action, three loans were repaid in full, while another was repaid with only a minimal loss resulting in paydown $69.6 million (23% of the original deal balance) to the senior classes. An additional $5.4 million is currently held in principal cash. The Positive Outlook on class D reflects the class' senior position in the capital structure and the substantial credit enhancement to the class.

The portfolio has become extremely concentrated with only five loans remaining. The portfolio is comprised of mezzanine debt (62.6%), B-notes (32.9%), and principal cash (4.5%). The current percentage of defaulted assets and Loans of Concern is 20.9% and 19.1%, respectively, compared to 13.2% and 21.5%, respectively, at the last rating action.

Brascan 2005-2 is a commercial real estate collateralized debt obligation (CRE CDO) managed by Brookfield Real Estate Partners, LLC. The transaction exited its reinvestment period on Dec. 15, 2010. As of the October 2011 trustee report, all overcollateralization and interest coverage tests were in compliance.

Under Fitch's methodology, approximately 76.7% 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 8.2% from, generally, year-end 2010 or trailing 12-month second quarter 2011.

The largest component of Fitch's base case loss expectation is related to a defaulted mezzanine loan (20.9%) secured by interests in a large multifamily loan located in New York City. The property is currently in foreclosure. Fitch modeled a full loss on the CDO's position in its base case scenario.

The next largest component of Fitch's base case loss expectation is related to a B-note (19.1%) secured by a 157,000 square foot office property located in Greenwich, CT. The largest tenant (39% of NRA) vacated the property in April 2010. Although a new tenant (18.2% of NRA) signed a lease, cash flow at the property is significantly lower than at issuance. Fitch modeled a term default and a full loss on this overleveraged position in its base case scenario.

The third largest component of Fitch's base case loss expectation is related to a mezzanine loan (30.8%) secured by a portfolio of office properties. Fitch modeled a maturity default and a significant loss in its base case scenario on this highly leveraged position.

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. Due to the concentration of the pool and the subordinate nature of all collateral, further upgrades are not warranted at this time.

The 'CCC' rating on class E 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 each class' credit enhancement.

Fitch has upgraded and revised the Rating Outlook as indicated:

--$8.1 million class D to 'BBBsf' from 'Bsf'; Outlook to Positive from Stable.

In addition, Fitch has affirmed and assigned a Recovery Estimate (RE) as indicated:

--$13.4 million class E at 'CCCsf'; assign RE 100%.

Classes A, B, and C 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:

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

--' Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (Dec. 1, 2011);

--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 16, 2011).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

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

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=657734

Structured Finance Recovery Estimates for Distressed Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656557

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 RatingsPrimary Surveillance AnalystMelissa CheAssociate Director+1-212-908-9107One State Street PlazaNew York, NY 10004orCommittee ChairpersonKaren TrebachSenior Director+1-212-908-0215orMedia Relations:Sandro Scenga, +1-212-908-0278 (New York)[email protected]

Source: Fitch Ratings

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