Fitch Affirms Concord Real Estate CDO 2006-1

2008-06-06 22:46:28 -

- Fitch Ratings has affirmed all classes of Concord Real Estate CDO 2006-1 (Concord 2006-1) as follows:

--$202,275,000 class A-1 at 'AAA';

--$23,250,000 class A-2 at 'AAA';

--$46,500,000 class B at 'AA+';

--$20,925,000 class C at 'AA';

--$37,200,000 class D at 'A';

--$22,087,000 class E at 'BBB+';

--$24,413,000 class F at 'BBB-';

--$18,600,000 class G at 'BBB-';

--$18,600,000 class H at 'BB'.

Fitch's affirmation of the above classes is based on the transaction maintaining an adequate reinvestment cushion and remaining within its other transaction covenants.

Deal Summary:

Concord 2006-1 is a $465,000,000 revolving commercial real estate (CRE) cash flow collateralized debt obligation (CDO) that closed on Dec. 21, 2006. As of the May 20, 2008 trustee report and based on Fitch categorizations, the CDO was substantially invested as follows: B-notes including CMBS rake bonds (38.8%), CRE mezzanine loans (29.4%), CMBS (15.3%), commercial mortgage whole loans/A-notes (14%), CRE CDO (2.4%), and uninvested proceeds (0.1%). The CDO is also permitted to invest in real estate investment trust (REIT) debt and Real Estate Bank Loans.

The portfolio is selected and monitored by WRP Management, LLC, as collateral asset manager. Concord Real Estate CDO 2006-1 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 January 2012.

Asset Manager:

Winthrop Realty Partners, L.P. (Winthrop) is the external advisor to the collateral manager for Concord Real Estate CDO 2006-1. WRP Management, LLC, a newly formed entity owned collectively by Winthrop Realty Trust (Winthrop REIT) and Lexington Realty Trust (Lexington), is the collateral manager. Winthrop REIT and Lexington have entered into a 50%/50% joint venture to manage CDOs that will be used as financing vehicles for the benefit of both REITs. The debt-funding platform created by this partnership invests primarily in CMBS, whole loans, B-notes and mezzanine loans.

Winthrop is a privately owned full-service national real estate investment and management company that, together with its affiliated entities, currently owns and/or manages approximately $3.5 billion in real estate assets throughout the country, as well as about $80 million in CMBS.

For more details refer to the Fitch Ratings Asset Manager Profile on Winthrop Realty Partners, L.P., available on the Fitch Ratings web site www.fitchratings.com.

The whole loans are specially serviced by Ocwen Loan Servicing, LLC, (rated 'CSS2' by Fitch).

Performance Summary:

As of the May 20, 2008 trustee report, the as-is poolwide expected loss (PEL) for Concord 2006-1 has increased from 21.5% at the effective date, June 19, 2007, to 28.75%. This increase is primarily due to the application of Fitch's interim surveillance methodology to the rated securities portion of the portfolio (17.7%) and the addition of one highly leveraged hotel loan (5.7%). As a result of the increased PEL, the CDO has below average reinvestment flexibility with 6% of cushion based on its current weighted average spread (WAS) of 2.42%.

The CDO's Fitch PEL covenant varies depending on the in-place WAS. Based on the trustee reported WAS, the PEL covenant can range from 30.25% to 34.75% (the WAS/PEL matrix). The WAS has decreased slightly from 2.51% at the effective date.

The tighter cushion is somewhat mitigated by the pool's approximately 30% concentration of long-term, fixed-rate loans. These loans are less likely to repay during the reinvestment period.

Since the effective date, four commercial real estate loans (CREL) were repaid (9.2%); while six new CRELs (12.2%) were added to the pool. The loans added to the pool had a similar weighted average expected loss than the loans that were paid off. Additionally, two new CMBS (2.8%) rated 'BBB+' and 'BBB-' were added.

The overcollateralization (OC) and interest coverage (IC) ratios of all classes have remained above their covenants, as of the May 20, 2008 trustee report.

Collateral Analysis:

The CDO is comprised of approximately 82.3% CRE loans, including 38.8% B-notes including CMBS rake bonds, 29.4% mezzanine loans, and 14% whole loans/A-notes,.

Per the May 20, 2008 trustee report and based on Fitch categorizations, the CDO contains 30.1% of collateral backed by hotels, which exceeds the maximum concentration of 30%. This amount includes the underlying properties within the CMBS securities. Excluding CMBS securities, the concentration drops to 23.4%. Office loans comprise the largest percentage of assets in the pool at 38.8%. The CDO is also within all its geographic covenants.

The Fitch Loan Diversity Index is 378 compared to the covenant of 500, which represents average diversity as compared to other CRE CDOs.

For a summary of the Fitch Loans of Concern and the 10 largest loans, please refer to the Hartford Mezzanine Investors I Surveyor Snapshot, which will be available beginning June 13, 2008 at www.fitchratings.com.

Rating Definitions:

The ratings of the class A-1, A-2, B and C 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 of the class D, E, F, G, and H notes 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 PEL covenant. Fitch will consider placing classes on Rating Watch Negative should the reinvestment cushion fall below 2%. 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.

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% value decline, classes could also be placed on Rating Watch Negative or downgraded.

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 approximately 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, 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
Gregg Katz, +1-312-606-2343 (Chicago)
Karen Trebach, +1-212-908-0215 (New York)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)