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Fitch Affirms Wachovia CRE CDO 2006-1.

NEW YORK -- Fitch affirms all classes of Wachovia 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 last review (June 18, 2007), 14 loans have been added to the pool while 13 loans have paid off, resulting in a net increase of $71.7 million or a 6.2% increase to the CDO par balance (including related future funding obligations). Based on the Nov. 19, 2007 trustee report and Fitch categorizations, the CDO is substantially invested as follows: whole loans, and A-notes and A-note Pari Passu notes (84.1%), B-notes and Junior Participations (6%), mezzanine loans (2.6%), and cash (7.3%). The CDO is also permitted to invest in commercial mortgage backed securities (CMBS), 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:

The Structured Finance Group (SFG) is a commercial real estate loan (CREL) portfolio management team located within Wachovia Bank. SFG focuses on providing nonrecourse, transitional, and high leverage capital to the bank's CRE customer base. SFG is rated 'CAM 2-' as a CRE collateralized debt obligation (CDO) asset manager by Fitch. SFG is currently staffed by approximately 17 experienced CRE professionals. SFG benefits from the commercial bank's robust internal procedures and controls. Additionally, its lending activities are supported by the bank's commercial mortgage loan servicing unit Wachovia Securities, which is rated 'CPS2+', 'CMS2', and 'CSS2' by Fitch.

Performance Summary:

Since the last review, the CDO's reinvestment cushion has declined to 3.75% from 5.75% and is considered below average. The Fitch poolwide expected loss (PEL) is 22.125% compared to the covenant of 25.875%. The 13 loans that have paid off since the effective date review had a lower than average weighted average expected loss of 21.44% due to the fact that the majority of the properties had executed their business plans and reached stabilization. The fact that the seasoned loans are paying off as they reach stabilization, as well as the addition of land and hotel loans, are the main drivers for the increased poolwide expected loss. Land and hotel loans generally carry higher expected losses than other property types.

Although the cushion is below average relative to other CRE CDOs, the expectation is that the portfolio will continue to be well diversified, weighted predominantly in whole loans and A-notes, and secured by traditional property types. Wachovia's CREL origination platform is diverse and well established.

As of the November Trustee report, the CDO is 92.6% invested in assets with an additional 8.9% of the par balance allocated to delayed funding obligations, up from last review. As of the last review, the CDO was 86% invested in assets, of which 10% of the par balance was allocated to delayed funding obligations. The percentage of subordinate debt has decreased to 8.6% from 11% at last review.

The weighted average spread (WAS) of outstanding loan balances decreased since the last review to 2.40% from 2.48%; however, it remains above the covenant of 1.50%. The weighted average coupon (WAC) has remained at 7.5%. The percent of fixed rate loans is 1.7%. These loans are unhedged, within the maximum covenant of allowable unhedged assets at 2.75%. The weighted average life (WAL) has decreased since last review to 1.51 years from 1.7 years. This 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 increased over the same period. The increase in the IC ratios is attributed to the net increase of $71.7 million in CDO par as well as the spread widening on the newly purchased collateral. Both ratios are above their covenants as of the November 2007 trustee report.

Collateral Analysis:

As of the November 2007 trustee report and based on Fitch categorizations the CDO is within all its property type covenants. Office loans comprise the largest percentage of assets at 35.4%. Multifamily is the second largest percentage at 24.9%. The CDO is also within all its geographic location covenants with the highest percentage of assets located in California at 31.9%.

The pool has above average loan diversity relative to other CRE CDOs. Based on Fitch categorizations the pool currently consists of 67 loans and the Fitch Loan Diversity (LDI) score is 205, compared to the covenant of 244. Only one 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 December 21, 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, K, L, M, N, and O 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 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

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:Dec 20, 2007
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