Fitch: U.S. CREL CDO Delinquencies Drop Slightly on Fewer Repurchases.

NEW YORK -- A drop in this month's repurchases and the resolution of two performing matured balloons drove the U.S. commercial real estate loan (CREL) CDO delinquency rate for March 2008 down slightly to 0.74%, from last month's rate of 0.93%, according to the latest CREL CDO Delinquency Index (DI) from Fitch Ratings. In addition to matured loans, the delinquency index includes 60 days or greater delinquencies and repurchased assets.

Consistent with last month, Fitch noted 32 reported loan extensions in March 2008. The majority of the extensions were again a result of options contemplated at closing. Approximately 20% of these extensions, however, were modifications from the original loan documents which is also consistent with last month. The loan extensions together with the amount of matured balloon loans continue to reflect the lower available liquidity for the type of CRE loans typically found in CREL CDOs, specifically loans backed by transitional and/or highly leveraged CRE collateral.

Although the overall delinquency rate for CREL CDOs remains low, it is 2.5 times the U.S. CMBS loan delinquency rate of 0.30% for March 2008, which was near a historical low. The CREL CDO Delinquency Index is anticipated to be more volatile than the CMBS delinquency index given the smaller universe of loans and the more transitional nature of the collateral. The Fitch CREL CDO Delinquency Index tracks approximately 1,100 loans and 330 rated securities/assets ($23.8 billion in 35 CREL CDOs), while the Fitch CMBS delinquency index covers approximately 42,000 loans ($562 billion in nearly 500 CMBS transactions).

The March 2008 delinquency index encompasses 13 loans, which include five loans that are 60 days or more delinquent, seven matured balloons, and one repurchased loan. No rated assets are delinquent this month. Of the loans that are 60 days or more delinquent, two loans are in foreclosure (0.08%), representing the first time the index has included any loans in foreclosure. One of the matured balloons is new; it is a B-note on a home-site development.

Asset managers also reported that one asset (0.03%) was repurchased in March 2008. As forecasted over the past few months, repurchases by asset managers has fallen (last month's repurchase rate was 0.17%). The one repurchased loan was removed to facilitate a short-term extension outside of the CDO. Shortly after removing the loan, the manager reported that the sponsor had repaid over 95% of the multi-property loan via the sale and refinance of most of the properties. Another manager repurchased one asset (0.11%) in a pro-active portfolio management move in anticipation of a potential sponsor bankruptcy. This repurchase was not considered for the index as the loan is current, the property is performing, and there is equity beyond the CDO's debt exposure.

Although not included in the delinquency index, 10 loans, representing 0.47% of the CREL CDO collateral were 30 days or less delinquent in March 2008. This statistic is consistent with last month's total of 0.52%. Three of these loans were brought current after the cutoff date for this report; the other loans suggest that overall delinquencies may be higher next month.

While no rated collateral was delinquent this month, asset managers reported that 11 rated assets were credit impaired. These assets are mostly sub-prime RMBS assets and serve as collateral for one CREL CDO. The impaired assets are equivalent to 0.34% of all CREL CDO assets.

In its ongoing surveillance process, Fitch will increase the probability of default to 100% for delinquent loans that are unlikely to return to current. This adjustment could increase the loan's expected loss in the cases where the probability of default was not already 100%. The weighted average expected loss on all loans (Poolwide Expected Loss, PEL) is the credit metric used to monitor the performance of a CREL CDO. Issuers covenant not to exceed a certain PEL and Fitch determines the ratings of the CDO liabilities based on this covenant. Fitch analysts monitor the as-is PEL over the life of the CDO. The difference between the PEL covenant and the as-is PEL represents the transaction's cushion for reinvestment and negative credit migration.

Fitch currently rates 35 CREL CDOs encompassing approximately 1,100 loans and 330 rated assets with a balance of $23.8 billion. Fitch's U.S. CREL CDO DI will be published during the first week of every month based on asset manager and servicer reports collected by Fitch's dedicated CRE CDO surveillance team.

In addition to publishing the monthly Delinquency Index, Fitch is committed to providing ratings that reflect current performance and anticipate future credit events. To achieve this objective, it is imperative that Fitch's CRE CDO surveillance team be provided with relevant and up-to-date loan-level information. Fitch recently published a report entitled 'CRE CDOs: Enhanced Information Provides Early Warning Signals' which is available on the Fitch web site at www.fitchratings.com. In the report, Fitch describes the on-going reports Fitch requests from asset managers, in addition to the monthly delinquency status report, and explains the value of each report.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries, and any successor or successors thereto.