DBRS Assigns BB (sf) Rating to Class A-M of GECMC 2007-C1

DBRS has today assigned a rating of BB (sf) to Class A-M of GE Capital Commercial Mortgage Corporation, Commercial Mortgage Pass-Through Certificates, Series 2007-C1. The trend is Stable. The rating was issued at the request of an investor and no other classes within the transaction are rated by DBRS.

The transaction is a seasoned fixed-rate conduit transaction that consists of 164 loans for a total balance of $2.9 million as of the December 2012 remittance. DBRS conducted a review of the underlying collateral and made some modeling assumptions based on information DBRS has been provided through the transaction’s investor reporting documents and some additional documents provided by the investor in the transaction.

There are currently 27 loans in special servicing, representing 19.2% of the pool. Of these loans, nine are real estate owned (REO) with a total UPB of $117 million and 12 are categorized as in foreclosure with a total unpaid principal balance (UPB) of $126 million. DBRS estimates losses on these loans to exceed $157 million, taking into consideration appraisal reductions, advances, ASER interest and servicer liquidation fees.

The most pivotal asset in special servicing is the Skyline Portfolio (Skyline) because of its size. It comprises 6.8% of the pool. The loan is currently in special servicing for imminent default as the borrower had notified the servicer of a steep decline in occupancy. The loan is secured by eight office buildings located in the Falls Church, Virginia, office market. The loan is currently operating under a forbearance agreement that allows the borrower to accrue its interest payments to the outstanding UPB. That agreement is scheduled to expire in January 2013. The updated appraisal obtained by the servicer would indicate a greater than 60% loss to the trust balance; however, it is likely that a modification will be entered into, given the institutional sponsorship on the property. DBRS has modeled this loan with the property’s updated cash flow, which reflects the decline in occupancy resulting in a loss of 22%.

There are two loans that have been modified with a B-note. Due to the lack of detailed information available to DBRS surrounding these modifications, DBRS assumed a 100% loss on the B-notes, which constitutes an additional $54.3 million of losses to the bonds. In total, with the B-notes and the REO and foreclosure losses, DBRS expects actual realized losses of over $233 million, which will hit as high up as Class C in the GECMC 2007-C1 waterfall. The credit enhancement to Class A-M following these projected losses would be 13.25%.

With the additional modifications to Skyline anticipated and many expected non-recoverable advances and liquidation fees, it is highly likely that Class A-M will experience periodic interest shortfalls throughout its rated life. DBRS expects that the Interest in Arrears designation will be applied and that will limit the potential for this class to ever achieve an investment-grade rating over its lifetime, even if the credit metrics of the pool improves.

The rating assigned to the certificate by DBRS is based exclusively on the credit provided by the transaction structure and underlying trust assets. This class will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating CMBS and North American CMBS Surveillance Methodology, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.