Fitch Affirms N-Star VI

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed all classes of N-Star REL CDO VI, Ltd./LLC (N-Star VI). Fitch's performance expectation incorporates prospective views regarding commercial real estate market value and cash flow declines. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations reflect the relatively stable performance of the portfolio since the last rating action. Fitch's base case loss expectation is 49.9% compared to 50.1% at the last rating action. Since the last rating action and as of the April 2015 trustee report, principal paydowns to classes A-1 and A-R were $41.8 million. Four assets were repaid in full, while two assets realized losses totaling $18.2 million, generally in line with Fitch's expectations at the last rating action. As of the April 2015 trustee report, all overcollateralization and interest coverage ratios were in compliance.

N-Star VI is collateralized by commercial real estate (CRE) loans, consisting of both senior and subordinate debt positions, as well as rated securities, consisting of CRE collateralized debt obligation (CDO) and commercial mortgage-backed securities (CMBS) bonds. As of the April 2015 trustee report and per Fitch categorization, the CDO was substantially invested as follows: whole loans/A-notes (36.4%), B-notes (17%), CRE CDOs (13.8%), preferred equity (12%), mezzanine debt (9.9%), CMBS (5.3%), and principal cash (5.6%). The combined percentage of defaulted assets and assets of concern has increased to 54.9% from 44% at the last rating action as the pool has become more concentrated.

Under Fitch's methodology, approximately 88.4% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. In this scenario, the modeled average cash flow decline is 7% from, generally, third-quarter 2014 and year-end (YE) 2014 cash flows. Modeled recoveries are average at 43.5%.

The three largest contributors to modeled losses have remained the same since Fitch's last rating action.

The largest contributor to modeled losses is a mezzanine loan (9.2% of pool) secured by an interest in a 400-unit multifamily property located in Ventura, CA. The property previously had approximately 20% of its units encumbered by a 20-year below-market-rate affordability restriction that expired in January 2007. The initial business plan was to create value through renovating and leasing these units at higher market rates, but due to the economic downturn, the business plan stalled. The asset manager took a deed-in-lieu of foreclosure in February 2013. As of September 2014, the property was 94.5% occupied. There is approximately $62 million of debt senior to the CDO's position. Fitch considers the CDO's position to be highly leveraged and modeled a full loss in its base case scenario.

The second largest contributor to modeled losses is a mezzanine loan (9.1%) secured by an interest in a 1,504 key hotel property located off the strip in Las Vegas, NV. In 2012, the sponsor acquired its own gaming license and terminated the casino lease with a third party operator. The sponsor has also expanded and renovated the casino area, added additional restaurants, and reconfigured existing floor plans. Although the trailing-twelve month revenue per available room and net operating income as of September 2014 have improved over YE 2013 and YE 2012, Fitch considers the CDO's position to be highly leveraged and modeled a full loss in its base case scenario. There is approximately $1 billion of debt senior to the CDO's mezzanine position.

The third largest contributor to modeled losses is the rated securities portion of the collateral (19.1%), which has a weighted average Fitch-derived rating of 'B-/CCC+', remaining the same since the last rating action.

This transaction was analyzed according to the 'Surveillance Criteria for U.S. CREL CDOs', which applies stresses to property cash flows and debt service coverage ratio tests to project future default levels for the underlying portfolio. Recoveries are based on stressed cash flows and Fitch's long-term capitalization rates. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Rating Criteria for Structured Finance CDOs'. The breakeven rates for classes A-1, A-R, and A-2 are generally consistent with the ratings assigned below.

The 'CCCsf' ratings for classes B through K are based upon a deterministic analysis that considers Fitch's base case loss expectation for the pool and the current percentage of defaulted assets and assets of concern, factoring in anticipated recoveries relative to each class' credit enhancement.

N-Star VI was initially issued as a $450 million CRE CDO managed by NS Advisors, LLC. The transaction had a five-year reinvestment period during which principal proceeds may be used to invest in substitute collateral that ended in June 2011. In November 2009, $8 million of notes were surrendered to the trustee for cancellation.

RATING SENSITIVITIES

The Negative Outlooks on classes A-1, A-R, and A-2 reflect the potential for future downgrades if there is deterioration of loan performance or if the ratings of the underlying rated securities migrate downward. The junior classes B through H are subject to downgrade as losses are realized or if realized losses exceed Fitch's expectations.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch has affirmed the following classes:

--$95.8 million A-1 at 'BBsf; Outlook Negative;

--$38.4 million class A-R at 'BBsf; Outlook Negative;

--$27.2 million class A-2 at 'Bsf'; Outlook Negative;

--$21.8 million class B at 'CCCsf'; RE 0%;

--$11.8 million class C at 'CCCsf'; RE 0%;

--$10 million class D at 'CCCsf'; RE 0%;

--$10.1 million class E at 'CCCsf'; RE 0%;

--$7.7 million class F at 'CCCsf'; RE 0%;

--$6.9 million class G at 'CCCsf'; RE 0%;

--$6.1 million class H at 'CCCsf'; RE 0%.

Fitch does not rate the Income Notes.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Global Rating Criteria for Structured Finance CDOs (pub. 16 Jul 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Global Structured Finance Rating Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Surveillance Criteria for U.S. CREL CDOs (pub. 24 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=811268

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985738

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. 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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150602006566/en/

Fitch Ratings
Primary Analyst
Melissa Che
Director
+1-212-612-7862
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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