Fitch Ratings has upgraded one class and affirmed the remaining classes of Credit Suisse First Boston Mortgage Securities Corp., Series 2007-TFL2, reflecting Fitch's base case loss expectation of 5.5% for the pooled 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.
Under Fitch's methodology, approximately 58.3% of the pool 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 11.1% from generally year-end 2010 financials. To determine a sustainable Fitch cash flow and stressed value, Fitch analyzed servicer-reported operating statements and rent rolls, updated property valuations, and recent sales comparisons. Fitch estimates the average recoveries on the loans will be approximately 90.6% in the base case.
The transaction is collateralized by five loans, three of which are secured by hotels (59.6%), and two by offices (40.4%). Presently four loans have their final maturities in 2012 (51.7%); the remaining loan has extensions through 2015 (48.3%). Since the last review, two loans have been disposed from the trust with loss severities that exceeded 100%. These loans defaulted early in the life of the transaction and remained non-performing loans for 18+ months. In both cases, the losses were due to a large amount of accrued advances as well as significant declines in property values. The ratings from the previous review took the expected losses of these dispositions into consideration.
The largest contributor to modeled losses, Planet Hollywood Resort & Casino, is secured by a resort, casino, and entertainment complex in Las Vegas, NV, that includes a 2,519 room hotel, a 116,000 square foot (sf) casino, an outdoor pool area and 32,000 sf spa, eight restaurants, and 75,000 sf of convention, trade show, and meeting facility space. While net operating income (NOI) remains below expectations from issuance, income has been steadily improving, with an NOI of $39.4 million in March 2011, compared with $29.9 million in 2010 and $12.7 million in 2009.
The loan was modified and assumed by Harrah's in February 2010. The loan's initial maturity occurs in December 2011, with extension options available through 2015. Harrah's is one of the largest casino operators in Las Vegas, with nine casinos and an estimated 25,000 employees. The Planet Hollywood asset is expected to benefit from Harrah's extensive experience in the operation and management of its portfolio of gaming properties. The option to extend through 2015 will provide the property with additional time to stabilize operations under the new sponsor.
The next contributor to loss, 100 West Putnam Avenue, consists of a 152,304-sf office property in Greenwich, CT. The property underwent a $17 million renovation around the time of securitization, which focused on updating both exterior and interior aspects of the building. At issuance, a majority of the tenant space was leased, but not occupied as renovations were still taking place. As the effects of the recession began to take their toll on commercial real estate markets and company revenues alike, a number of tenants at the property either defaulted on their leases or vacated their spaces. The property continues to face the difficulty of attracting replacement tenants in a market that supports much lower rents than the asking rates at the time of origination. As of year-end 2010, the property was 55% occupied; however, the servicer indicated that per the April 2011 rent roll, occupancy had increased to 73%. The largest tenant, Plainfield Asset Management (38.7% of net rentable area), is not in occupancy of their space, but they continue to honor their payments. Their lease expires in 2019. Year-end 2010 cash flow was considered in Fitch's analysis, but given the high degree of tenant volatility, Fitch also considered the stressed value-per-foot when determining the loan's stressed value.
Fitch downgrades the following class and assigns a Recovery Rating (RR):
--$42.6 million class C to 'CCCsf/RR1' from 'B/LS5.
Fitch also affirms the following classes; and revises Loss Severity (LS) ratings and Outlooks as indicated:
--$458.9 million class A-1 at 'Asf; LS to 'LS2' from 'LS3'; Outlook to Stable from Negative;
--$100 million class A-2 at 'BBBsf; LS to 'LS3' from 'LS5'; Outlook to Stable from Negative;
--$207 million class A-3 at 'BBsf'; LS to 'LS2' from 'LS4'; Outlook to Stable from Negative;
--$45.7 million class B at 'Bsf; LS to 'LS4' from 'LS5'; Outlook to Stable from Negative;
--$33.5 million class D at 'Csf/RR2';
--$2.2 million class E at 'Dsf/RR6';
--$0 class F at 'Dsf/RR6';
--$0 class G at 'Dsf/RR6';
--$0 class H at 'Dsf/RR6';
--$0 class J at 'Dsf/RR6';
--$0 class K at 'Dsf/RR6';
--$0 class L at 'Dsf/RR6'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 13, 2010);
--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (Dec. 2, 2010);
--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009);
--'Criteria for Structured Finance Recovery Ratings', (Aug. 17, 2009).
Applicable Criteria and Related Research:
Criteria for Structured Finance Recovery Ratings
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644902
Criteria for Structured Finance Loss Severity Ratings
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=426038
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=579165
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326
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