Fitch Affirms N-STAR REL CDO VI CRE CDO.
--$174,800,000 class A-1 floating-rate notes affirmed at 'AAA';
--$70,000,000 class A-R revolving floating-rate notes affirmed at 'AAA';
--$27,225,000 class A-2 floating-rate notes affirmed at 'AAA';
--$21,825,000 class B floating-rate notes affirmed at 'AA';
--$12,825,000 class C floating-rate deferrable interest notes affirmed at 'A+';
--$13,950,000 class D floating-rate deferrable interest notes affirmed at 'A-';
--$10,125,000 class E floating-rate deferrable interest notes affirmed at 'BBB+';
--$7,650,000 class F floating-rate deferrable interest notes affirmed at 'BBB';
--$9,900,000 class G floating-rate deferrable interest notes affirmed at 'BBB-'.
N-Star VI is a revolving commercial real estate cash flow collateralized debt obligation (CDO) that closed on March 17, 2006. It was incorporated to issue $450,000,000 of floating-rate notes and preferred shares. As of Dec. 12, 2006, the CDO is invested in a portfolio of commercial mortgage whole loans and A-notes (58%), B-notes (11%), commercial real estate mezzanine loans (19%), preferred equity (5%), and commercial real estate collateralized debt obligations (7%). The CDO is also permitted to invest in real estate-related corporate and bank debt and commercial mortgage-backed securities (CMBS).
As of Dec. 12, 2006, the CDO was fully invested in loans and securities, of which 92% is funded and 8% is unfunded on the class A-R notes. Bondholders have committed up to $70,000,000 for class A-R notes. As of the December 2006 trustee report, $36,221,347 has been drawn.
The portfolio is selected and monitored by NS Advisors, LLC, an indirect wholly owned subsidiary of NorthStar Realty Finance Corp. (NYSE:NRF) (NorthStar, rated 'CAM2' as an asset manager by Fitch). N-Star VI has a five-year reinvestment period during which, if all reinvestment criteria are satisfied, principal proceeds may be used to invest in substitute collateral. The reinvestment period ends in March 2011.
NS Advisors, LLC is a wholly owned subsidiary of NorthStar Realty Finance Corp., an internally-managed real estate finance company operating as a REIT. NorthStar has three business lines: real estate debt, real estate security purchasing, and net lease property ownership. The Net Lease Properties business concentrates on the acquisition of real estate properties primarily net leased to corporate tenants. The Real Estate Debt business originates, acquires, and structures senior and subordinate debt investments secured by income-producing real estate properties. The Real Estate Securities business invests in commercial real estate debt securities, including commercial mortgage backed securities, CDOs, REIT unsecured debt, and credit tenant loans. Both the Real Estate Debt and Real Estate Securities businesses are financed in the CDO market, and as of Sept. 30, 2006, NS Advisors, LLC had approximately $4 billion in assets under management, consisting of real estate securities and real estate debt positions financed through eight issued CDOs.
Since closing and as of the December 2006 trustee report, the CDO still has a significant amount of reinvestment flexibility. The Fitch poolwide expected loss (PEL) is 27.25% compared to a covenant of 44.125%. This results in an above average cushion of 16.875%.
Since close, the pool has migrated towards more whole loans and A notes (to 58% from 39%), and less B notes, second mortgages, mezzanine debt, and preferred equity (to 35% from 42%), and maintained its exposure to commercial real estate collateralized debt obligation securities (7%).
As expected, with the increase in whole loans, the weighted average spread (WAS) has decreased since close to 3.97% from 4.11%; however, the WAS remains above the covenant of 3%. The weighted average coupon (WAC) has increased slightly to 8.26% from 8.12% at close and continues to remain above the 6% covenant. 2.57% of the loans in the pool are fixed rate and unhedged, below the covenanted 5%. The weighted average life (WAL) has decreased to 2 years from 3 years at close, implying that the loans will fully turnover during the reinvestment period.
The over-collateralization (OC) ratios of all classes have remained the same since close while the interest coverage (IC) ratios have improved over the same period. The improvement in the IC ratios is attributed to converting cash balances to loan investments. Both tests are within their covenants as of the December 2006 trustee report.
Although there is above average reinvestment cushion, upgrades during the reinvestment period are unlikely, given the pool could still migrate to the PEL covenant. The Fitch PEL is a measure of the hypothetical loss inherent in the pool at the 'AA' stress environment before taking into account the structural features of the CDO liabilities. Fitch PEL encompasses all loan, property, and poolwide characteristics modeled by Fitch.
Including future funding, the portfolio's exposure to whole loans and A-notes has increased by 17% since close. The CDO loan collateral has migrated away from subordinate debt. B-notes decreased to 11% from 26% at close and mezzanine debt decreased to 19% from 23% at close. The commercial real estate collateralized debt obligation securities have remained the same.
Since close, the largest percent of non-traditional assets continues to be hotels, which remain at 18.5%. Office properties remain the largest percentage at 39.2% of the loan portfolio. The property type composition is within its covenanted guidelines.
The pool has comparable loan diversity relative to other CRE CDOs. The Herfindahl score is currently 22.68 compared to the covenant of 22. The largest two loans each represent less than 7% of the ramped portfolio. The CDO is well within all of its geographic location covenants with 20.3% of the assets located in New York and 19.8% of the pool located in California.
Since the pool has closed, two loans have been paid off in full and a third loan was partially prepaid totaling approximately $66.5 million. Additionally, the asset manager bought out a $15 million pari passu interest in a $25 million B-note secured by a portfolio of limited service hotels in order to provide the trust with the flexibility to purchase additional assets. The $15 million pari passu B-note was performing as agreed and was contributed to another CDO managed by NS Advisors, LLC.
For a summary of the Fitch Loans of Concern and the 10 largest loans, please refer to the NStar VI CREL Surveyor Snapshot on the Fitch Research website, which will be available beginning Jan. 23, 2007.
The ratings of the class A and B notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class C, D, E, F, G, H, I, J and K notes address the likelihood that investors will receive ultimate interest and deferred interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.
Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Derivative Fitch web site at www.derivativefitch.com. For more information on the Fitch Rating Methodology for CREL CDOs, see 'Rating Methodology for U.S. Commercial Real Estate Loan CDOs' dated Sept. 25, 2006 and also available at www.derivativefitch.com.
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|Date:||Jan 17, 2007|
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