2008-06-19 23:59:07 -
- Fitch Ratings has affirmed all classes of Capital Trust RE CDO 2004-1 as follows:
--$100,463,000 class A-1 at 'AAA';
--$79,398,000 class A-2 at 'AAA';
--$29,167,000 class B at 'AA';
--$19,444,000 class C at 'A-';
--$21,065,000 class D at 'BBB';
--$3,241,000 class E at 'BBB-';
--$6,481,000 class F at 'BB';
--$16,204,000 class
G at 'B'.
Fitch's affirmation of the above classes is based on the transaction maintaining an adequate reinvestment cushion, remaining within its other transaction covenants, and passing Fitch's property value decline stress scenario. The deal was reviewed as approximately 40% of the portfolio has turned over since the last review.
Deal Summary:
Capital Trust RE CDO 2004-1 is a $326,816,517 revolving commercial real estate (CRE) cash flow collateralized debt obligation (CDO) that closed on July 20, 2004. As of the May 2008 trustee report and per Fitch categorizations, the CDO was substantially invested as follows: B-notes (55.2%), CRE mezzanine loans (33.8%), real estate bank loans (3.5%), commercial mortgage-backed securities (CMBS; 6.2%), and cash (1.4%).
The portfolio is selected and monitored by CT Investment Management Co., LLC (CTIMCO). Capital Trust RE CDO 2004-1 has a five-year reinvestment period during which, if all reinvestment criteria are satisfied, principal proceeds may be used to invest in substitute collateral. The reinvestment period ends next month (July 2008).
Asset Manager:
CTIMCO, the collateral manager for the transaction, is a wholly owned subsidiary of Capital Trust Inc. (CT). CT, a specialty finance and investment management company founded in 1997 by Sam Zell and John Klopp, is a balance sheet investor and investment manager focused on structured finance products. The company is one of the leading real estate mezzanine investors in the U.S. and has originated over $10 billion of mezzanine and other high-yield investments.
Performance Summary:
The CDO is in compliance with all its reinvestment covenants. The current portfolio's weighted average Fitch stressed last-dollar debt service coverage ratio (DSCR) is 0.99 times (x), which is above the minimum covenant requirement of 0.95x. The last-dollar DSCR is calculated as the last dollar exposure to the trust and excludes any subordinate amounts outside the transaction. Fitch reviewed the most current cash flow statements available for its analysis.
The Fitch Poolwide Expected Loss (PEL) is 34.625%, as of June 2008, compared to a PEL of 30.625% at last review in July 2007. This increased PEL is primarily due to the application of Fitch's interim surveillance methodology to the rated securities portion of the portfolio which accounts for approximately 10% of the assets. Additionally, one of the pool's B-notes is secured by a portfolio of three casinos which have experienced decreases in net cash flow. Fitch increased the expected loss on this loan to account for its declining performance. As a result of the increased PEL, the CDO has below average reinvestment flexibility with 3.375% of cushion. The tighter cushion is mitigated by the fact that the reinvestment period ends in approximately one month, thus offering little opportunity for reinvestment.
The overcollateralization (OC) and interest coverage (IC) ratios of all classes have remained above their covenants, as of the May 2008 trustee report.
Collateral Analysis:
The pool is comprised predominantly of commercial real estate loan (CREL) assets; approximately 10% is comprised of rated securities. Of the CREL assets, all are subordinate debt, which is either CRE B-notes or mezzanine debt. The rated securities are composed of CMBS and a real estate bank loan. The weighted average rating of the rated securities is 'BB+/BB'.
As of the May 2008 trustee report and per Fitch categorizations, the CDO is within all its property type covenants. Office loans comprise the largest percentage of assets at 37.1%. Hotel loans have the next highest percentage at 28.6%, however if adjusted for two defeased hotel loans, the percentage drops to 20.7%. The CDO is also within all its geographic location covenants with the highest percentage of assets located in New York at 15.8%. Based on the number of obligors, the pool is considered concentrated relative to other CRE CDOs.
For a summary of the Fitch Loans of Concern and the 10 largest loans, please refer to the Capital Trust RE CDO 2004-1 CREL Surveyor Snapshot on the Fitch Ratings web site at www.fitchratings.com, which will be available beginning June 26, 2008.
Rating Definitions:
The ratings of the class A and B notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings on classes C, D, E, F and G address the likelihood that investors will receive ultimate interest and deferred interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.
Upgrades during the reinvestment period are unlikely given the pool could still migrate to the modeled stressed PEL. Generally, Fitch will consider placing classes on Rating Watch Negative should the reinvestment cushion fall below 2%. Additionally, Fitch performs value decline stress testing on the CDO's liabilities. To the extent investment grade rated bonds could be impaired by a 25% property value decline, classes could also be placed on Rating Watch Negative or downgraded. The Fitch PEL is a measure of the hypothetical loss inherent in the pool at the 'AA' stress environment before taking into account the structural features of the CDO liabilities. Fitch PEL encompasses all loan, property, and poolwide characteristics modeled by Fitch.
Fitch will continue to monitor and review this transaction and will issue an updated Snapshot report after each committeed review. The surveillance team will conduct a review whenever there is at least a 15% change in the collateral composition, or semi-annually.
For more information on the Fitch Rating Methodology for CREL CDOs, see 'Rating Methodology for U.S. Commercial Real Estate Loan CDOs' dated Dec. 20, 2007, which is also available at www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 Ratings, New York
Aaron Gluck, +1-212-908-9154
Stacey McGovern, +1-212-908-0722
Media Relations:
Sandro Scenga, +1-212-908-0278
