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-New NorthStar CMBS deal fails to receive 'AAA' rating from Fitch.

M2 EQUITYBITES-October 30, 2012--New NorthStar CMBS deal fails to receive 'AAA' rating from Fitch(C)2012 M2 COMMUNICATIONS

30 October 2012 - The first U.S. CMBS deal to come to market with transitional collateral lacks sufficient credit enhancement to achieve 'AAA' ratings, according to U.S.-based Fitch Ratings.

Fitch said that, while approached to provide feedback on NorthStar 2012-1 Mortgage Trust (NorthStar 2012-1), the firm was ultimately not asked to rate the deal due to the agency's more conservative credit stance.

In fact, the most senior class (class A), as structured with 56.5% credit enhancement, would likely achieve a rating no higher than 'Asf', two full rating categories below where the class is expected to be rated by two other rating agencies, Fitch said.

Fitch said it is concerned that a significant portion of the collateral is sub-performing and transitional in nature with a reliance on borrower pro forma business plans to improve performance.

Absent significant growth in cash flows, Fitch would be concerned about refinance risk and the high likelihood of default at maturity, especially in a higher interest rate environment. Fitch's view is that the default probability for the collateral in this pool exceeds any that Fitch has seen to date in CMBS 2.0.

Further, in high stress scenarios, Fitch concludes that there is a potential for very limited recovery prospects upon default

1 USD = 0.621516 GBP

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Publication:M2 EquityBites (EQB)
Date:Oct 30, 2012
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