Fitch Downgrades 12 Classes of LNR CDO V 2007-1; off Rating Watch Negative.

NEW YORK -- Fitch Ratings has downgraded 12 classes of notes issued by LNR CDO V, Series 2007-1 Ltd./LLC, (LNR CDO V) as follows:

--$170.5 million class A to 'AA' from 'AAA';

--$89.8 million class B to 'BBB' from 'AA';

--$15 million class C-FX to 'BB' from 'A+';

--$52 million class C-FL to 'BB' from 'A+';

--$35.8 million class D to 'BB' from 'A';

--$35 million class E to 'BB' from 'A-';

--$35 million class F to 'B' from 'BBB+';

--$15.2 million class G to 'B' from 'BBB';

--$35 million class H to 'B' from 'BBB-';

--$56.3 million class J to 'B-' from 'BB+';

--$25.1 million class K to 'B-' from 'BB';

--$20.6 million class L to 'B-' from 'BB-'.

Additionally, Fitch has removed all classes from Rating Watch Negative, where they were originally placed on Jan. 16, 2008. Fitch does not rate the preferred shares.

LNR CDO V is a commercial real estate collateralized debt obligation (CRE CDO) primarily backed by commercial mortgage-backed securities (CMBS) B-pieces that closed on Mar. 15, 2007. CMBS B-piece resecuritizations (also referred to as first loss CRE CDOs/ReREMICs) are CRE CDOs and ReREMIC transactions that include the most junior bonds of CMBS transactions. LNR Partners, Inc. (rated 'CSS1' by Fitch as a commercial mortgage special servicer) selected the initial collateral and serves as the collateral administrator.

The collateral for this CDO consists of high-yielding junior bonds of CMBS transactions. The underlying assets of the CMBS bonds, by their nature, face similar exposures to losses from any downturn in the commercial real estate market as well as refinancing risks at the assets' maturity dates. As a mitigant, however, the underlying CMBS transactions do have significant geographic, property type and tenant diversity.

While Fitch continues to believe investment grade CMBS will perform well even in a heightened stress environment, the risks facing first loss (unrated) and junior rated bonds within the capital structure of CMBS transactions have increased with expectations of a rise in commercial real estate defaults from current low levels. Even a relatively modest increase in CRE losses could be material for these portfolios.

In reviewing CRE CDOs, Fitch has targeted expected losses in different rating stresses based on the quality of the underlying CMBS collateral. The overall expected losses reflect the single sector exposure, the concentrated nature of these portfolios, and the low expected recoveries upon bond default, especially for more junior and thinner classes of CMBS tranches. Additional ratings considerations include seasoning of underlying collateral, obligor diversity, actual bond performance and projected losses. The specific credit characteristics that are factored into Fitch's rating review are discussed below.

LNR CDO V is collateralized by all or a portion of 114 classes of fixed-rate CMBS in 22 separate underlying transactions. All performance and collateral information is based on the Mar. 19, 2008 trustee report and discussions with the collateral administrator. The pool's obligor diversity is considered average for CMBS B-piece resecuritizations, and the CMBS collateral is all from the 2006 vintage (1.7 years of seasoning). Approximately 35% of the collateral currently is not rated (first loss), and therefore, is more susceptible to losses in the near-term. All the collateral is below investment grade, with the CDO holding 40.5% in the 'BB' category and 24.5% in the 'B' category.

The CDO has neither paid down nor realized any losses since issuance. Losses to the collateral are projected with $236.2 million of the loans in the underlying CMBS transactions currently 60 days or more delinquent according to the current trustee report.

Fitch conducted cash flow modeling to test the transaction's structure under various default and interest rate stress scenarios. The ratings on the class A and B notes address the timely payment of interest and ultimate repayment of principal. The ratings on classes C-FX, C-FL, D, E, F, G, H, J, K and L address the ultimate payment of interest and ultimate repayment of principal.

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.