NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded seven classes and placed one class on Rating Watch Negative of COBALT CMBS Commercial Mortgage Trust 2007-C3 commercial mortgage pass-through certificates. A detailed listing of rating actions follows at the end of this release.

The downgrades reflect an increase in Fitch losses attributed to updated valuations of specially serviced loans and performing loans with declines in performance indicative of a higher probability of default and loss. Fitch modeled losses of 15.3% of the original pool (including losses of 0.7% incurred to date).

Class A-M has been placed on Rating Watch due to the potential for additional losses associated with the 2 Rector Street loan (5.06%) and two other loans in the pool that are secured by office buildings in Burbank, CA and Stamford, CT (combined 2.68%). Fitch expects to resolve the Rating Watch status of this class, which could result in a one or more category downgrade, following the receipt of updated leasing information for the properties.

As of the December 2011 distribution date, the pool's aggregate principal balance was $1.97 billion, down from $2 billion at issuance. There are no defeased loans. There are cumulative interest shortfalls in the amount of $4.8 million currently affecting classes H through P. Fitch has identified 43 loans (42.6%) as Fitch Loans of Concern, which includes 12 specially serviced loans (6.8%).

The largest contributor to losses is the Irvine EOP San Diego Portfolio loan (6.94%), which is collateralized by seven properties consisting of six class A and B office buildings and one single-tenant restaurant all located in San Diego, CA. The aggregate square footage for the portfolio is 380,954 square feet (sf). The loan remains current and is with the master servicer. As of September 2011 the portfolio's occupancy was at 80.7% compared to approximately 90% at origination.

The second largest contributor to losses is the 2 Rector Street loan which is collateralized by a 417,473 sf class B office property located in Manhattan. This loan was previously in special servicing and returned to the master servicer in September 2010. A debt service reserve was established, which will likely be depleted in the near future. The property continues to underperform the market with the most recent reported occupancy of 74% as of October 2011 compared to 98.6% at the time of origination.

The third largest contributor to losses is the Arbor at Broadlands loan (2.55%) which is collateralized by a 240-unit multifamily property located in Ashburn, VA. As of September 2011, the occupancy was 94% and the 2010 debt service coverage ratio (DSCR) was 0.89 times (x). The low DSCR and high occupancy are due to an increase in concessions to retain tenants.

Fitch downgrades, placed on Rating Watch Negative, and assigns Recovery Estimates to the following classes as indicated:

--$201.7 million class A-M at 'AAAsf'; on Rating Watch Negative from Stable Outlook;
--$153.8 million class A-J to 'B-sf' from 'BBsf'; Outlook Negative;
--$40.3 million class B to 'CCCsf' from 'B-sf'; RE 100%;
--$22.7 million class G to 'CCsf' from 'CCCsf'; RE 100%;
--$25.2 million class H to 'CCsf' from 'CCCsf'; RE 100%;
--$7.6 million class J to 'Csf' from 'CCCsf'; RE 100%;
--$5 million class K to 'Csf' from 'CCsf'; RE to 65% from 100%;
--$10.1 million class L to 'Csf' from 'CCsf'; RE to 0% from 80%.

Fitch affirms and assigns a Recovery Estimate to the following classes as indicated:

--$103 million class A-2 at 'AAAsf'; Outlook Stable.
--$93.9 million class A-3 at 'AAAsf'; Outlook Stable;
--$45.5 million class A-PB at 'AAAsf'; Outlook Stable;
--$783 million class A-4 at 'AAAsf'; Outlook Stable;
--$359.5 million class A-1A at 'AAAsf'; Outlook Stable;
--$20.2 million class C at 'CCCsf'; RE 100%;
--$25.2 million class D at 'CCCsf'; RE 100%;
--$20.2 million class E at 'CCCsf'; RE 100%
--$25.2 million class F at 'CCCsf'; RE 100%
--$25.2 million class M at 'Csf'; RE 0%;
--$25.2 million class N at 'Csf'; RE 0%;
--$25.2 million class O at 'Csf'; RE 0%.

Class A-1 is paid in full. Fitch does not rate class P. The rating on class IO was previously withdrawn.

Additional information on Fitch's amended criteria for analyzing recent vintage U.S. CMBS is available in the Dec. 21, 2011 report, 'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions', which is available at 'www.fitchratings.com' under the following headers:

Structured Finance >> CMBS >> Criteria Reports

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.

Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2011);
--'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Dec. 21, 2011).

Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569
Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=662869

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