Fitch Dwngrs LTC 1996-1 Cls E & F, Cls C & D On Rating Watch Neg.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 2, 2000

LTC's commercial mortgage pass-through certificates, series 1996-1, $11.8 million class E and $4.5 million class F certificates are downgraded from 'BB-' and 'B-' to 'B' and 'CCC', respectively by Fitch.

Also, the $7.6 million class C and the $5.1 million class D certificates, rated 'A' and 'BBB', respectively, are placed on Rating Watch Negative. Fitch affirms the $48.7 million classes A, R, and LR certificates at 'AAA' and the $8.7 million class B certificates at 'AA'. These rating actions follow Fitch's annual review of the transaction, which closed in March 1996.

The certificates are collateralized by 29 loans secured by 46 health care properties. As of October 2000, the collateral balance had declined 18%, since closing, to $92.0 million. The pool is diversified among 15 states, with the largest concentrations in Georgia (20% by principal balance), Arizona (15%), and Florida (13%).

The downgrades and Rating Watch classifications reflect a continued deterioration in the collateral's operating performance, questions concerning the outlook of the collateral, and concerns about operator concentration.

Fitch reviewed year-end 1999 operating performance for 26 of the 29 loans (or 95% by principal balance). Based on the reported net operating income, adjusted for a 5% management fee, and actual debt service, the comparable weighted-average debt service coverage ratio (DSCR) declined 8% to 1.32x from 1.43x in 1998. Eight loans, representing 33% of the principal balance, had a DSCR below 1.0x. The decline in performance was mainly attributed to shifts in patient mix from Medicare and Private-Pay to Medicaid, reimbursement changes under the Prospective Payment System, or mid-year changes of the operators of several of the properties. It should be noted, however, that, to date, there have been no reported delinquencies and no realized losses.

In addition to the deterioration in performance, Fitch continues to be concerned with the operator composition of the pool. Sun Healthcare (Sun), which filed for bankruptcy in October 1999, operates five facilities, accounting for 22% of the pool balance. Sun is not expected to announce its intentions regarding the affirmation or disaffirmation of leases until January 2001. While only one of Fitch's loans of concern was operated by Sun, it should be noted that if Sun decides to disaffirm any of its leases, it may lead to temporary underperformance of the underlying facility. Integrated Health Services (IHS), which filed for bankruptcy in February 2000, operates five facilities, accounting for 16% of the pool balance. Like Sun, IHS is expected to announce its intentions regarding its leases in early 2001. IHS operates facilities securing two loans Fitch deemed to be of concern.

Fitch assumed 10 loans, representing 37% of the principal balance, would default. Three of these loans (17% of the principal balance) experienced significant year-to-year declines in their DSCRs. The servicer attributed these declines to a mid-year change in the operators of the underlying properties. While new operators are in place, Fitch is unclear as to the new operators' ability to improve performance. This uncertainty led to the placement of classes C and D on Rating Watch Negative. The downgrading of classes E & F reflected the hypothetical default of those loans (seven loans, or 20% by principal balance) that have had a history of underperformance.

Fitch will continue to monitor the performance of this transaction as surveillance is ongoing.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance markets worldwide.