NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed 14 classes of Resource Real Estate Funding CDO 2007-1 Ltd./LLC (RRE 2007-1), reflecting Fitch's base case loss expectation of 36.4%. Fitch's performance expectation incorporates prospective views regarding commercial real estate market values and cash flow declines. A detailed list of rating actions follows at the end of this release.

RRE 2007-1 is collateralized by both senior and subordinate commercial real estate (CRE) debt: 57.6% are either whole loans or A-notes, while 9.7% are either B-notes or mezzanine loans as of the July 2011 trustee report. In addition, 15.2% are commercial mortgage backed securities (CMBS) and 17.5% of the portfolio is held in cash. As of the July 2011 trustee report, all over-collateralization and interest coverage tests were in compliance.

Since last review, realized losses on defaulted/credit risk assets totaled approximately $15 million. Two loans (2.1%) are currently defaulted or delinquent; Fitch considers nine other loans (32%) to be Fitch Loans of Concern due to low current net operating income relative to origination expectations.

Since last review, $30.9 million of notes were surrendered to the trustee for cancellation, including partial amounts of classes B, F, G and H.

Under Fitch's surveillance methodology, approximately 60.7% 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 8.3% from the most recent available cash flows (generally trailing 12 months first quarter 2011). Fitch estimates that average recoveries will be 40.0%.

The largest component of Fitch's base case loss expectation is the expected loss assigned to the CMBS collateral. The weighted average Fitch derived rating for the CMBS collateral is 'B+/B' compared to 'BB-' at last review.

The next largest component of Fitch's base case loss expectation is a whole loan (6.2%) secured by a full-service hotel located in Tucson, AZ. Current cash flow from the portfolio does not support annual debt service. Fitch modeled a significant loss on this underperforming loan in its base case scenario.

The third largest component of Fitch's base case loss expectation is a whole loan (6.3%) secured by a multifamily property in Renton, WA. Although occupancy has remained in the 90% range, rental rates have continued to be pressured. Current occupancy is 94.6% as of March 2011. Fitch modeled a substantial loss in its base case scenario on this loan.

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 portfolio. Recoveries are based on stressed cash flows and Fitch's long-term capitalization rates. The credit enhancement to classes A-1 through C was then compared to the modeled expected losses. The credit enhancement was determined to be consistent with the ratings assigned below. Based on prior modeling results, no material impact was anticipated from cash flow modeling the transaction.

The 'CCC' and below ratings for classes D through M 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' credit enhancement. These classes were assigned Recovery Ratings (RR) in order to provide a forward-looking estimate of recoveries on currently distressed or defaulted structured finance securities.

Classes A-1 through C maintain their Negative Rating Outlook reflecting Fitch's expectation of further potential negative credit migration of the underlying collateral.

RRE 2007-1 is a $500 million CRE collateralized debt obligation (CDO) managed by Resource Real Estate, Inc. The transaction has a five-year reinvestment period during which principal proceeds may be used to invest in substitute collateral. The reinvestment period ends in June 2012.

Fitch has affirmed the following classes, as indicated:

--$180,000,000 class A-1 at 'BBB' Rating Outlook Negative;

--$50,000,000 class A-1R at 'BBB' Rating Outlook Negative;

--$57,500,000 class A-2 at 'BB' Rating Outlook Negative;

--$15,000,000 class B at 'B' Rating Outlook Negative;

--$7,000,000 class C at 'B' Rating Outlook Negative;

--$26,750,000 class D at 'CCC/RR2';

--$11,875,000 class E at 'CCC/RR3';

--$5,375,000 class F at 'CCC/RR5';

--$5,000,000 class G at 'CCC/RR6';

--$625,000 class H at 'CCC/RR6';

--$11,250,000 class J at 'CCC/RR6';

--$10,000,000 class K at 'CCC/RR6';

--$18,750,000 class L at 'CCC/RR6';

--$28,750,000 class M at 'CC/RR6'.

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2011);

--'Surveillance Criteria for U.S. CREL CDOs and CMBS Large Loan Floating-Rate Transactions' (Dec. 2, 2010);

--'Global Rating Criteria for Structured Finance CDOs' (Oct. 15, 2010);

--'Criteria for Structured Finance Recovery Ratings' (July 12, 2011).

Applicable Criteria and Related Research:

Criteria for Structured Finance Recovery Ratings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=644902

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564895

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=579165

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569

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.

CONTACT:

Fitch Ratings
Karen Trebach, +1-212-908-0215
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
Email: sandro.scenga@fitchratings.com

KEYWORDS:   United States  North America  New York

INDUSTRY KEYWORDS:   Professional Services  Banking

MEDIA: