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Fitch Affirms Capital Trust 2005-1

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed all classes of Capital Trust RE CDO 2005-1 (Capital Trust 2005-1). Fitch's base case loss expectation for the transaction is 49.6%. 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.

KEY RATING DRIVERS

Capital Trust 2005-1 is highly concentrated with assets from only nine obligors remaining in the portfolio. Approximately 46.7% of the pool is currently defaulted while a further 31.2% are considered assets of concern. As of the June 2014 trustee report, the CDO was invested as follows: B-notes (50.8%), mezzanine debt (22.1%), commercial real estate collateralized debt obligations (CRE CDOs) (15.6%) and commercial mortgage backed securities (CMBS) (11.5%). Since Fitch's last rating action, the capital structure has paid down by $16.7 million. Realized losses over the same period were approximately $12.3. As of the June 2014 trustee report, all overcollateralization (OC) are failing their respective triggers.

Under Fitch's methodology, approximately 66.7% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. Fitch estimates that average recoveries will be 25.6% reflecting the low recovery expectations upon default of the CMBS tranches and real estate loans which are predominantly subordinate.

Capital Trust 2005-1 is a commercial real estate collateralized debt obligation (CDO) managed by CT Investment Management Co., LLC (CTIMCO).

The largest component of Fitch's base case loss is the expected losses on the CMBS bond collateral. The second largest contributor to loss is a defaulted B-note (15.5% of the pool) secured by a full service hotel located in Long Beach, CA. The loan defaulted at loan maturity in July 2012. Fitch modeled a substantial loss in its base case scenario.

The next largest component of Fitch's base case loss is secured by a junior position in a condominium interest in an office complex (13.6%) consisting of five office buildings in New Hyde Park, NY. The collateral consists of 920,059 sf. The loan transferred to special servicing for a second time in September 2013 due to imminent default and subsequently became real estate owned (REO) in June 2014. The special servicer is working to lease up the property from its occupancy of 72% as of June 2014. While the collateral is now REO, the CDO's position is behind senior positions totaling $95 million.

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 (DSCR) tests to project future default levels for the underlying CREL collateral in the portfolio and uses the Portfolio Credit Model for the CMBS collateral. Recoveries for the CREL collateral are based on stressed cash flows and Fitch's long-term capitalization rates. Additionally, the default levels were compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'.

RATING SENSITIVITIES

The affirmation of the class A notes at 'CCC' reflects the possibility going forward that interest and/or principal proceeds will not be sufficient to pay the timely interest class, given the risk of adverse selection as the portfolio becomes increasingly concentrated. Ultimate recoveries to the class, however, should be substantial and include some near term maturities that are anticipated to repay a significant portion of the class.

On March 20, 2012, the Trustee declared an event of default (EOD) due to non-payment of full and timely accrued interest to the class B notes. The class B notes are a non-deferrable class and have been affirmed at 'Dsf' due to default in the timely payment of their accrued interest. Noteholders had not given direction to accelerate the notes or liquidate the portfolio at the time of this review.

The ratings for classes C through H 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 the credit enhancement of each class.

Fitch has affirmed the following classes as indicated:

--$24,410,877 class A at 'CCCsf'; RE 100%;

--$36,309,000 class B at 'Dsf'; RE 55%;

--$21,110,000 class C at 'Csf'; RE 0%;

--$14,354,000 class D at 'Csf'; RE 0%;

--$15,199,000 class E at 'Csf'; RE 0%;

--$6,755,000 class F at 'Csf'; RE 0%;

--$6,755,000 class G at 'Csf'; RE 0%;

--$10,133,000 class H at 'Csf'; RE 0%.

Fitch does not rate the class J and X-J certificates or the preferred shares.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (Nov. 25, 2013);

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).

Applicable Criteria and Related Research:

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 Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840034

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Fitch Ratings
Primary Analyst
Matthew McGowan
Associate Director
+1 212-908-0733
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1 212-908-0785
or
Media Relations, New York
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Source: Fitch Ratings