NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded six and affirmed one class issued by N-Star Real Estate CDO V Ltd (N-Star V) as a result of significant negative credit migration on the underlying collateral. A complete list of rating actions follows at the end of this release.

Since Fitch's last rating action in November 2010, approximately 49.4% of the portfolio has been downgraded. Currently, 86% of the portfolio has a Fitch derived rating below investment grade and 54.1% has a rating in the 'CCC' category and below, compared to 72.4% and 32.8%, respectively, at the last review. The class A-1 notes have received $82.6 million in pay downs since the last review.

This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near term maturities. Based on this analysis, the class A notes' breakeven rates are generally consistent with the ratings assigned below.

For the class B through F notes, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, the class B notes have been downgraded to 'CCsf', indicating default is probable. Similarly, the class D through F notes, currently receiving interest paid in kind (PIK) whereby the principal amount of the notes is written up by the amount of interest due, have been downgraded to 'Csf', indicating that default is inevitable.

The Negative Outlook on the class A-1 notes reflects the potential for further deterioration on the underlying collateral. Fitch does not assign Outlooks to classes rated 'CCC' and below.

N-Star V is a collateralized debt obligation (CDO) which closed Sept. 22, 2005. The transaction ended its reinvestment period on Sept. 22, 2010. The portfolio is composed of 83% commercial mortgage-backed securities (CMBS), 6% real estate investment trust debt (REIT), and 11% SF CDOs. N-Star V is currently overcollateralized by $107.1 million, primarily as a result of collateral purchases at a discount during the reinvestment period.

Fitch has affirmed the following class as indicated:

--$252,952,559 class A-1 notes at 'Bsf'; Outlook Negative.

Fitch has downgraded the following classes as indicated:

--$46,472,397 class A-2 notes to 'CCCsf' from 'Bsf';
--$40,935,261 class B notes to 'CCsf' from 'CCCsf';
--$17,921,536 class C notes to 'CCsf' from 'CCCsf';
--$15,303,889 class D notes to 'Csf' from 'CCsf';
--$4,991,084 class E notes to 'Csf' from 'CCsf';
--$13,032,797 class F notes to 'Csf' from 'CCsf'.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

The information used to assess these ratings was sourced from the issuer, periodic trustee reports, note valuation reports, and the public domain.

Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2011);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 15, 2010);
--'Global Criteria for Cash Flow Analysis in CDOs (Sept. 15, 2011).

Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651560
Global Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=650717

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