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Fitch Upgrades 7 Classes of Wachovia CRE CDO 2006-1

NEW YORK–(BUSINESS WIRE)–

Fitch Ratings has upgraded seven classes of Wachovia CRE CDO 2006-1, Ltd. (Wachovia CRE CDO 2006-1). 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

The upgrades reflect the significant delevering of the capital structure and Fitch’s better than average base case expected loss of 6.2% for the CDO. Since the last rating action, classes A though G have paid in full from the disposal of 19 loan or CMBS interests as well as asset amortization. There were no realized losses over the same period as all assets were removed or paid off at or above par. Further, in August 2014, the asset manager surrendered portions of classes B through N for cancellation. Between built par and the surrendered notes, the CDO is significantly over collateralized by $166 million, as of the Feb 2015 trustee report.

As of February 2015, CDO collateral consisted of the following: whole loans/A-notes (82%), CMBS (3.6%), and cash (14.4%). The approximately $40 million in principal proceeds are expected to be used to further pay down classes H through K.

The CDO collateral continues to become more concentrated. There are interests in approximately 14 different assets contributed to the CDO. The current combined percentage of defaulted assets and Loans of Concern is 38%.

Under Fitch’s methodology, approximately 68.1% of the portfolio is modeled to default in the base case stress scenario, defined as the ‘B’ stress. Modeled recoveries are well above average due to the, generally, stabilized nature of the collateral and the senior position of the majority of the debt.

The largest contributor to base case loss is a whole loan (20.6% of the pool) secured by a 402,000 sf retail center located in Glen Mills, PA. As of 9/30/14, occupancy was 96.7%. The largest tenants are Home Depot through 2033 and Marshalls through 2018. The loan, which matures on March 31, 2015, is over leveraged and Fitch modeled a loss in its base case scenario.

This transaction was analyzed according to the ‘Surveillance Criteria for U.S. CREL CDOs’, which applies stresses to property cash flows and debt service coverage ratio tests to project future default levels for the underlying portfolio. Recoveries are based on stressed cash flows and Fitch’s long-term capitalization rates. The default levels were then compared to the breakeven levels generated by Fitch’s cash flow model of the CDO under the various defaults timing and interest rate stress scenarios as described in the report ‘Global Rating Criteria for Structured Finance CDOs’. The breakeven rates for classes H through O pass the cash flow model at or above the ratings listed below. Upgrades to classes M though O were limited due to the increasing concentration of the portfolio.

The Stable Outlooks generally the significant credit enhancement to the classes and positive cushion in the modeling.

RATING SENSITIVITIES

If the collateral continues to repay at or near par, classes may be upgraded further.

Wachovia CRE CDO 2006-1 is a CRE CDO managed by Structured Asset Investors, LLC with Wells Fargo Bank, N.A., successor-by-merger to Wachovia Bank, N.A., as sub-advisor. The CDO exited its reinvestment period in September 2011.

Fitch upgrades the following classes as indicated:

–$15 million class H notes to ‘AAAsf’ from ‘Asf’; Outlook Stable;

–$13 million class J notes to ‘AAAsf’ from ‘BBBsf’; Outlook Stable;

–$10.95 million class K notes to ‘AAAsf’ from ‘BBBsf’; Outlook Stable;

–$5 million class L notes to ‘AAAsf’ from ‘BBBsf’; Outlook Stable;

–$21.75 million class M notes to ‘Asf’ from ‘BBsf’; Outlook Stable;

–$6.9 million class N notes to ‘Asf’ from ‘Bsf’; Outlook Stable;

–$6.5 million class O notes to ‘Asf’ from ‘Bsf’; Outlook Stable.

Classes A through G have paid in full. The preferred shares are not rated.

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

Applicable Criteria and Related Research:

–‘Surveillance Criteria for U.S. CREL CDOs’ (November 2014);

–‘Global Rating Criteria for Structured Finance CDOs’ (July 2014);

–‘Global Structured Finance Rating Criteria’ (August 2014).

Applicable Criteria and Related Research:

Surveillance Criteria for U.S. CREL CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=811268

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981153

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Investment & Company InformationFinanceFitch RatingsCDO Contact:

Fitch Ratings

Primary Surveillance Analyst

Stacey McGovern

Director

+1-212-908-0722

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Committee Chairperson

Mary MacNeill

Managing Director

+1-212-908-0785

or

Media Relations

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com […]

Fitch Affirms All Classes of Wachovia CRE CDO 2006-1

NEW YORK–(BUSINESS WIRE)–

Fitch Ratings has affirmed all rated classes of Wachovia CRE CDO 2006-1, Ltd. (Wachovia CRE CDO 2006-1) reflecting Fitch’s base case loss expectation of 8.1%. 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

Since last rating action, classes A-1A and A-2A have received pay down totaling $305 million primarily from 21 loan disposals as well as scheduled amortization. Realized losses were only $3.5 million as the majority of the assets were removed or paid off at par. Six loan interests were added over the same period with total built par of only $1.4 million. The CDO remains overcollateralized by approximately $75 million, as of the April 2013 trustee report.

As of the April 2013 trustee report, and per Fitch categorization, the CDO is substantially invested as follows: whole loans/A-notes (80.3%), REO (2.3%), B-notes (1%), mezzanine debt (0.3%), CMBS (6.9%), REIT debt (2.3%), and cash (7%). The CDO collateral continues to become more concentrated. There are interests in approximately 55 different assets contributed to the CDO. The current percentage of defaulted assets and Loans of Concern is 6.8% and 27.6%, respectively. The weighted average Fitch derived rating of the rated securities is ‘BBB/BBB-‘.

Under Fitch’s methodology, approximately 56% of the portfolio 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 8.8% from, generally, YE 2012. Modeled recoveries are well above average at 85.5% due to the, generally, stabilized nature of the collateral and the senior position of the majority of the debt.

The largest component of Fitch’s base case loss expectation is a whole loan (1.6%) secured by a 233-room hotel located in Warwick, RI, proximate to the airport. The property is underperforming its market with trailing 12 months January 2012 RevPAR 24% below its competitive set. Fitch modeled a significant loss on this loan in its base case scenario.

The next largest component of Fitch’s base case loss expectation is an REO (1.4%) multifamily property located in Las Vegas, NV. The property became REO in late 2012. Fitch modeled a significant loss on this loan in its base case scenario.

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 tests to project future default levels for the underlying portfolio. Recoveries are based on stressed cash flows and Fitch’s long-term capitalization rates. The default levels were then compared to the breakeven levels generated by Fitch’s cash flow model of the CDO under the various defaults timing and interest rate stress scenarios as described in the report ‘Global Criteria for Cash Flow Analysis in CDOs’. The breakeven rates for classes A through L pass the cash flow model at the ratings listed below.

The Positive and Stable Outlooks on classes A through L generally reflect the senior positions in the liabilities structures and/or positive cushion in the modeling.

The ‘CCC’ ratings for classes M through O 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 each class’s credit enhancement.

RATING SENSITIVITIES

If the collateral continues to repay at or near par, classes may be upgraded. The junior classes are subject to further downgrade should realized losses begin to increase.

Wachovia CRE CDO 2006-1 is a CRE CDO managed by Structured Asset Investors, LLC with Wells Fargo Bank, N.A., successor-by-merger to Wachovia Bank, N.A., as sub-advisor. The CDO exited its reinvestment period in September 2011.

Fitch affirms the following classes and revises Outlooks as indicated:

–$312,772,488 Class A-1A Notes at ‘AAsf’; Outlook to Positive from Stable;

–$68,500,000 Class A-1B Notes at ‘AAsf’; Outlook to Positive from Stable;

–$16,414,630 Class A-2A Notes at ‘AAAsf’; Outlook Stable;

–$145,000,000 Class A-2B Notes at ‘AAsf’; Outlook to Positive from Stable;

–$53,300,000 Class B Notes at ‘Asf’; Outlook Stable;

–$39,000,000 Class C Notes at ‘Asf’; Outlook Stable;

–$12,350,000 Class D Notes at ‘Asf’; Outlook Stable;

–$13,650,000 Class E Notes at ‘Asf’; Outlook Stable;

–$24,700,000 Class F Notes at ‘Asf’; Outlook Stable;

–$16,900,000 Class G Notes at ‘BBBsf’; Outlook Stable;

–$35,100,000 Class H Notes at ‘BBBsf’; Outlook Stable;

–$13,000,000 Class J Notes at ‘BBsf’; Outlook Stable;

–$14,950,000 Class K Notes at ‘BBsf’; Outlook Stable;

–$9,100,000 Class L Notes at ‘BBsf’; Outlook Stable;

–$34,450,000 Class M Notes at ‘CCCsf’; RE 100%;

–$16,250,000 Class N Notes at ‘CCCsf’; RE 100%;

–$6,500,000 Class O Notes at ‘CCCsf’; RE 100%.

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

Applicable Criteria and Related Research:

–‘Global Structured Finance Rating Criteria’ (June 6, 2012);

–‘Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions’ (Nov. 29, 2012);

–‘Criteria for Interest Rate Stresses in Structured Finance Transactions’ (Jan. 25, 2013);

–‘Global Criteria for Cash Flow Analysis in CDOs’ (Sept. 13, 2012),

–‘Structured Finance Recovery Estimates for Distressed Securities’ (Nov. 18, 2011).

Applicable Criteria and Related Research

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

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=695733

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

Global Criteria for Cash Flow Analysis in CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518

Structured Finance Recovery Estimates for Distressed Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656557

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790172

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contact:

Fitch Ratings

Primary Surveillance Analyst:

Stacey McGovern, +1-212-908-0722

Director

Fitch Ratings, Inc.

One State St Plaza, New York 10004

or

Committee Chairperson:

Mary MacNeill, +1-212-908-0785

Managing Director

or

Media Relations:

Sandro Scenga, New York, +1 212-908-0278

sandro.scenga@fitchratings.com […]