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Fitch Affirms Wachovia Bank CRE CDO 2006-1.

NEW YORK -- Fitch affirms all classes of Wachovia Bank CRE CDO 2006-1 (Wachovia CRE CDO) floating-rate notes as follows:

--$616,500,000 class A-1A at 'AAA';

--$68,500,000 class A-1B at 'AAA';

--$145,000,000 class A-2A at 'AAA';

--$145,000,000 class A-2B at 'AAA';

--$53,300,000 class B at 'AA';

--$39,000,000 class C at 'A+';

--$12,350,000 class D at 'A';

--$13,650,000 class E at 'A-';

--$24,700,000 class F at 'BBB+';

--$16,900,000 class G at 'BBB';

--$35,100,000 class H at 'BBB-';

--$13,000,000 class J at 'BB+';

--$14,950,000 class K at 'BB';

--$9,100,000 class L at 'BB-';

--$34,450,000 class M at 'B+';

--$16,250,000 class N at 'B';

--$6,500,000 class O at 'B-'.

Deal Summary:

Wachovia CRE CDO is a revolving commercial real estate (CRE) cash flow collateralized debt obligation (CDO), which closed on July 11, 2006. It was incorporated to issue $1,300,000,000 of floating-rate notes and preferred shares. Since the effective date review (March 16, 2007), 12 loans have been added to the pool while 16 loans have paid off, resulting in a net decrease of $48.9 million or a 3.8% decrease to the CDO par balance (including related future funding obligations). Based on the June 18, 2007 Fitch categorization, the CDO was substantially invested as follows: whole loans and A-notes (75%), B-notes (8%), mezzanine loans (3%), and cash (14%). The CDO is also permitted to invest in commercial mortgage backed securities (CMBS), commercial real estate (CRE) CDOs, REIT debt, and synthetic assets.

The collateral asset manager is Structured Asset Investors, LLC (SAI), a wholly owned subsidiary of Wachovia Corporation. An affiliate, Wachovia Bank N.A.'s Structured Finance Group (SFG), is serving as sub-advisor. SFG is responsible for selecting assets and monitoring the portfolio. Wachovia CRE CDO 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 September 2011.

Collateral Asset Manager:

SFG focuses on providing non-recourse, transitional and high leverage capital to Wachovia's commercial real estate customer base. SFG is housed in the corporate and investment banking group, specifically within the fixed income division's real estate capital markets group. Fitch rates SFG a 'CAM2-' as a commercial real estate loan (CREL) CDO Asset Manager. SFG is currently staffed by approximately 20 experienced commercial real estate professionals. The current outstanding balance of the SFG investment portfolio is approximately $2.66 billion (not including its $1.3 billion arranged CRE CDO). The unit benefits from the commercial bank's robust internal procedures and controls. The unit's lending activities are supported by the bank's commercial mortgage loan servicing units, which Fitch rates 'CPS2+', 'CMS2', and 'CSS2'.

Performance Summary:

Since the effective date, the CDO's reinvestment cushion has declined to 5.75% from 6%. The Fitch poolwide expected loss (PEL) is 20.125% compared to the covenant of 25.875%. Although loan diversity has improved since close, the 16 loans that have paid off since the effective date review had a low weighted average expected loss (11.891%) as the business plans were executed and the properties reached stabilization. The fact that the seasoned loans are paying off as they reach stabilization is the main driver of this increased poolwide expected loss.

Although the cushion is below average for CREL CDOs, the portfolio is well diversified. Additionally, the expectation is that the portfolio will continue to be weighted predominantly in whole loans and A-notes and be secured by traditional property types. Wachovia's CREL origination platform is diverse and well established. As a result, the expectation is that SFG should be able to manage the portfolio within more narrowly defined parameters compared with other CREL CDOs.

As of the effective date, the CDO was 80% invested in assets with an additional 9% of the par balance allocated to delayed funding obligations. The CDO is currently 76% invested in assets with an additional 10% of the par balance allocated to delayed funding obligations.

The weighted average spread (WAS) of outstanding loan balances decreased since the last review to 2.48% from 2.65%; however, it remains above the covenant of 1.5%. The weighted average coupon (WAC) has remained at 7.5%. The percent of fixed rate loans, however, is only 1.7%. These loans are not hedged, but this percentage is within the maximum covenant of 2.75%. The weighted average life (WAL) has remained unchanged since the last review at 1.7 years, which continues to imply that the loans will fully turnover during the reinvestment period.

The over-collateralization (OC) ratios of all classes have remained stable since the effective date review while the interest coverage (IC) ratios have declined over the same period. The decline in the IC ratios is attributed to the net loss of $48.9 million in CDO Par and the declining WAS. Both ratios are above their covenants as of the June 2007 trustee report.

Collateral Analysis:

As of the June 2007 trustee report, the CDO is within all its property type covenants. Office loans now comprise the largest percentage of assets at 39.5%. Since the effective date, multifamily has decreased to be the second highest percentage at 21.3%. The CDO is also within all its geographic location covenants with the highest percentage of assets located in California at 30.6%. The asset type by Fitch categorization has migrated to include a slightly higher percentage of B notes (to 7.8% from 6.3% of invested assets) while the mezzanine debt percentage has stayed roughly the same (2.5%).

The pool has above average loan diversity relative to other CRE CDOs. The pool currently consists of 65 loans and the Fitch LDI score is 182.39, compared to the covenant of 244. No loan represents more than 5% of the ramped portfolio.

For a summary of the Fitch Loans of Concern and the 10 largest loans, please refer to the 'Wachovia Real Estate CDO 2006-1 CREL Surveyor Snapshot' on the Fitch Research web site, which will be available beginning July 2, 2007.

Rating Definitions:

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, 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.

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.

Ongoing Surveillance:

Fitch will continue to monitor and review this transaction for future rating adjustments. The surveillance team will conduct a review on a quarterly basis. Additional deal information and historical data are available on the Derivative Fitch web site at For more information on Fitch's Methodology for rating CREL CDOs, see 'Rating Methodology for U.S. Commercial Real Estate Loan CDOs' dated Sept. 25, 2006 and also available at

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.
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Publication:Business Wire
Date:Jun 26, 2007
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