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Fitch Downgrades Four CMBS Transactions on Likely Default

Fitch Ratings downgraded four commercial mortgage-backed securities (CMBS) due to exposure to pieces of a $4.5bn commercial mortgage that is likely to default. The loan secures Stuyvesant Town/Peter Cooper Village, a collection of 56 multistory buildings on 80 acres with a total of 11,227 apartment units. The Stuy Town loan continues to underperform, along with other loans in the affected transactions, Fitch says. Based on a recent analysis, the ratings agency concluded debt service reserves on the Stuy Town loan are likely to run out by the end of 2009, almost certainly bringing the loan to default unless an equity infusion or recapitalization does not occur. Of the $4.5bn loan, $3bn is securitized and the remaining $1.5bn of mezzanine debt held outside the trust. Fitch determined cash flow generated from the property remains well below the amount needed to service the current outstanding debt, and the borrower as a result must use debt service reserves to cover operating shortfalls. "Based on current performance and the uncertainty surrounding ongoing litigation, we do not expect property performance to improve sufficiently to service the securitized portion of the $4.5bn debt before reserves are depleted," says senior director Adam Fox. Tishman Speyer Properties and BlackRock Realty acquired the Stuy Town/Cooper Village property with the intent of converting rent-stabilized units to market rents as tenants vacated, according to the ratings agency. A lawsuit regarding the de-stabilization of apartment units slowed the conversion process and weighed on existing expenses. Fitch notes the general reserve and replacement reserve are "essentially depleted" and the debt service reserve balance fell to $49.3m, from $400m at issuance. Write to Diana Golobay.

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