Fitch: Capmark Ch. 11 May Affect Capmark VII CRE CDO Ratings.

NEW YORK -- Capmark VII remains on Rating Watch Negative by Fitch Ratings following Capmark Financial Group's Chapter 11 bankruptcy filing earlier this week. Downgrade risk remains for the transaction due to continued underperformance. Fitch's Rating Watch review of Capmark VII will incorporate potential implications of the bankruptcy on the management of the CDO and on the loans with future funding obligations.

Further, Fitch does not anticipate any servicing disruption of the individual loans within the CDO serviced by Capmark Finance Inc.

On Oct. 26, 2009, Fitch Ratings downgraded Capmark Financial Group's (Capmark) Issuer Default Rating (IDR) to 'D' from 'C' in response to the company's filing of a voluntary petition seeking relief under Chapter 11 of the U.S. Bankruptcy Code. Capmark Finance Inc. is currently the servicer for Capmark VII-CRE, Ltd (Capmark VII). Capmark Investments, L.P., the subsidiary that serves as manager of Capmark VII, is not part of the bankruptcy filing.

Capmark VII is a $1,000,000,000 revolving CRE CDO that closed on Aug. 24, 2006. All classes of Capmark VII are currently on Rating Watch Negative. As of September 2009, the CDO was failing all three of its Principal Coverage tests due to haircuts associated with 11 defaulted loans. As long as these tests are failing, interest and principal proceeds are redirected to pay down the senior most notes. Fitch has finalized its CRE CDO surveillance methodology and anticipates resolution of the rating watch in the next few months.

Five loans included in Capmark VII are reported to maintain future funding obligations totaling $18.3 million. Although these future fundings are not direct obligations of the CDO, failure to advance the funds to borrowers could negatively affect the performance of these loans, which comprise 17.8% of the CDO collateral. It is unclear at this time whether the funds for these future advances have been set aside by any Capmark entity.

In anticipation of the bankruptcy action, Urdang Capital Management (Urdang), a real estate investment subsidiary of BNY Mellon Asset Management, was named as a nondiscretionary subadvisor to Capmark Investments, L.P. for Capmark VII. Urdang has hired eight team members from Capmark Investments, L.P. to manage the day to day operations of the CDO. Urdang, which is headquartered in Philadelphia, PA, has approximately $2.5 billion in gross private real estate investments under management.

Further, on Sept. 2, 2009, Capmark announced that it had entered into a put option agreement to sell its servicing and origination operations to Berkadia Commercial Mortgage LLC (Berkadia), a partnership between Berkshire Hathaway Inc. and Leucadia National Corporation. Berkadia has indicated to Fitch that it expects to retain substantially all of Capmark's servicing management and staff.

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