Fitch Ratings affirms, assigns Loss Severity (LS) ratings and Rating Outlooks to First Union-Lehman Brothers Commercial Mortgage Trust II, commercial mortgage pass-through certificates, series 1997-C2, as follows:
--Interest-only class IO at 'AAA'; Outlook Stable;
--$21.5 million class C at 'AAA/LS2'; Outlook Stable;
--$121.2 million class D at 'AAA/LS1'; Outlook Stable;
--$33.1 million class E at 'AAA/LS1'; Outlook Stable.
The remaining classes F, G, H, J and K are not rated by Fitch. Classes L and M have been reduced to zero due to realized losses. Classes A-1, A-2, A-3 and B have paid in full.
Affirmations are due to the pool's stable performance and minimal future expected losses following Fitch's prospective review of potential stresses to the transaction. As of the March 2010 distribution date, the pool's certificate balance has paid down 83.8% to $357.2 million from $2.2 billion at issuance.
There are 87 of the original 422 loans remaining in the transaction, four of which have defeased (15.2% of the current transaction balance). There are two specially serviced loans (0.7%) as of the March 2010 remittance. The largest specially serviced asset is a multifamily property located in Gardner, KS, that transferred to special servicing in February 2010. Fitch expects losses of less than 1% of the remaining pool balance from the loans in special servicing and loans that cannot refinance at maturity based on Fitch's refinance test. These losses are expected to be absorbed by the non-rated classes.
Fitch stressed the cash flow of the remaining non-defeased loans by applying a 10% reduction to 2008 fiscal year end net operating income and applying an adjusted market cap rate between 7.5% and 10.5% to determine value.
Similar to Fitch's prospective analysis of recent vintage commercial mortgage backed securities (CMBS), each loan also underwent a refinance test by applying an 8% interest rate and 30-year amortization schedule based on the stressed cash flow. Loans that could refinance to a debt service coverage ratio of 1.25 times or higher were considered to pay off at maturity. Eight loans did not pay off at maturity with three loans incurring a loss when compared to Fitch's stressed value.
Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the July 7, 2009 report, 'Surveillance Methodology for Recent Vintage U.S. CMBS,' which is available at 'www.fitchratings.com' under the following headers:
Structured Finance then CMBS then Criteria Reports
Additional information is available at www.fitchratings.com.
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