Fitch Affirms CSFB 1998-C2 Certificates; Assigns Outlooks

2008-10-22 02:52:01 -

- Fitch Ratings has affirmed and assigned Outlooks to Credit Suisse First Boston (CSFB) Mortgage Securities Corp.'s commercial mortgage pass-through certificates, series 1998-C2, as follows:

--Interest-only class AX at 'AAA'; Outlook Stable;

--$25.4 million class B at 'AAA'; Outlook Stable;

--$105.6 million class C at 'AAA'; Outlook Stable;

--$105.5 million class D at 'AAA'; Outlook Stable;

--$28.8 million class E at 'AAA'; Outlook Stable;

--$105.6 million class F at 'AA+', Outlook Positive;

--$19.2 million class G at 'A+'; Outlook Positive.

The $19.2 million class I remains at 'CC/DR4'. Fitch does not rate the $47.9 million class H and the $3.9 million class J. Classes A1 and A2 have paid in full. Although credit enhancement levels have increased since Fitch last rating action; Fitch expected losses have also increased and adverse selection among the remaining loans warrant affirmations of the current ratings. The rating Outlooks reflect the likely direction of the rating changes over the next one to two years. As of the October 2008 distribution date, the pool's aggregate principal balance has been reduced 76% to $461.1 million from $1.92 billion at issuance. There are 77 loans remaining in the pool, 19 (27.2%) of which are defeased.

Currently there are three specially serviced assets (4.3%) in the transaction. The first specially serviced asset (2.7%) was originally a portfolio of three retail properties in upstate New York and Vermont. It has been real estate owned (REO) since June 2007. Two properties have since been sold and the net proceeds were applied to reduce the principal balance of the loan. The special servicer is marketing the remaining property for sale. A recent appraisal valuation indicates that losses are expected upon the disposition of this asset.

The second specially serviced asset (1.3%) is secured by a 178,031 square feet (SF) retail property in Muskogee, OK. The loan was recently transferred to special servicing due to imminent default. The loan has an anticipated repayment date of Nov. 11, 2008, at which time the interest rate increases 5%. The most recent servicer reported physical occupancy is 12%. The two major tenants, Wal-Mart and the grocer, AWG, have gone dark but continue to pay till late 2010. The property is on a ground lease which expires in 2046.

The third specially serviced asset (0.4%) is a 149-room hotel located in Fairborn, OH and has been REO since February 2008. It was formerly a full service hotel but lost its franchise flag in late 2007. It is currently operates as an independent hotel. The performance of the property has declined significantly due to reduced demand from the local market. Occupancy rate as of Aug. 31, 2008 was only 12.3%, compared to 48% at issuance. A recent appraisal valuation indicates that losses are expected upon the disposition of this property. Fitch expects losses from the two REO assets to deplete class J and significantly impact class I.

In addition to the three specially serviced assets, Fitch has identified seven more loans of concern (19.2%) due to declining performance. The largest Fitch loan of concern (7.1%) is secured by three retail properties totaling 547,217 square feet (SF) in various locations in Texas. Servicer reported year end (YE) 2007 Debt Service Coverage Ratio (DSCR) was 0.9 times (x), compared to a DSCR of 1.27x at issuance. The decline in DSCR was primarily due to the losses of several tenants due to lease expirations and reduced income as a result of unpaid rent by defaulted tenants. As of March 2008, the combined occupancy rate for the portfolio was 79%, compared to 93.9% at issuance.

The second largest Fitch loan of concern (3.3%) loan is secured by five properties with the single tenant, United Artist Theatre. Per servicer, two of the five properties have deferred maintenance issues and have been closed. The other three properties are in good condition, according to the most recent inspections. As this is a Credit Tenant Lease (CTL) loan, the borrower is not required to report financial information at the property level.

The largest loan in the transaction is secured by a 504,573 SF office property in downtown Manhattan submarket of New York City. It is 100% occupied by the City of New York with a lease expiration date of July 7, 2018.

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
Amy Gan, 212-908-9143
Adam Fox, 212-908-0869
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