OREANDA-NEWS. February 09, 2015. Fitch Ratings has downgraded two classes and affirmed 19 classes of COBALT CMBS Commercial Mortgage Trust's (COBALT) commercial mortgage pass-through certificates series 2007-C2. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The downgrades to the A-M classes are the result of insufficient credit enhancement relative to their ratings; the Outlooks remain negative due to the uncertainty of recoveries on several of the specially serviced loans. Although overall loss expectations remain consistent with the prior rating action, paydown to the senior classes has been minimal, therefore credit enhancement has not been increasing.

Fitch modeled losses of 12.7% of the remaining pool; expected losses on the original pool balance total 13.1%, including \\$73.3 million (3% of the original pool balance) in realized losses to date. Fitch has designated 44 loans (35.9%) as Fitch Loans of Concern, which includes 12 specially serviced assets (20.4%).

As of the January 2015 distribution date, the pool's aggregate principal balance has been reduced by 20.8% to \\$1.92 billion from \\$2.42 billion at issuance. Per the servicer reporting, one loan (3.9% of the pool) is defeased. Interest shortfalls are currently affecting classes D through S.

The largest contributor to expected losses remains the Peter Cooper Village/ Stuyvesant Town (PCV/ST) asset (13.1% of the pool), a 56-building multi-family complex with 11,227 units located on the east side of Manhattan in New York City. The loan transferred to special servicing in November 2009 at the borrowers request.

On June 3, 2014, the trust received title to the property via deed-in-lieu of foreclosure which canceled the UCC foreclosure action which had previously been initiated. On July 3, 2014, certain mezzanine lenders who had recently purchased their positions filed a complaint alleging that the deed-in-lieu breached the terms of the intercreditor agreement, among other claims. These mezzanine lenders filed a suit pursuing damages from the special servicer as Senior Lender. The suit was moved to Federal Court, which was returned to state court on Jan. 19, 2015, and the special servicer re-filed a motion to dismiss from Aug. 18, 2014. Per the special servicer, the current and future legal fees are anticipated to be covered by property operations; therefore, additional fees will not be taken from the trust's interest. Any potential sale of the property cannot occur until this litigation is resolved; therefore, Fitch is not expecting an imminent resolution.

An updated appraisal was received in September 2014 showing an increase to \\$3.5 million from \\$3.4 million as of September 2013. Fitch continues to model losses based on the proportional amount of the most-recent appraisal less assumed fees and expenses. Property performance continues to improve with 99% occupancy as of September 2014.

The second largest contributor to expected losses is a 15-story, 293-key full-service hotel located in Fort Lauderdale, FL (2.1%). The loan transferred to special servicing in June 2013 due to imminent default after the borrower requested a modification. The property's performance has struggled due to pricing pressures from new competition entering the market over the last several years. In addition, the loan began amortizing in May 2012. The special servicer reports that occupancy increased slightly to 76% as of the TTM November 2014 from 72% as of TTM November 2013. Additionally, the special servicer reported that ADR increased to \\$121 from \\$110 and RevPAR to \\$92 from \\$83, for TTM November 2014 over TTM November 2013. The special servicer is negotiating possible loan modification with the borrower while pursuing foreclosure.

The third largest contributor to expected losses is the 300 Broadhollow Road loan (1.9%), which is secured by a 242,292 sf, class-A, office building located in Melville, NY. The loan was previously in special servicing between March 2011 and March 2013 due to monetary default. The loan was modified in December 2012 and a bifurcation into an A/B note structure with a \\$22 million A note and \\$14.8 million B note balances. The modification also included an interest-only payment extension until maturity in February 2017, a new equity contribution of \\$3.15 million for TI/LC reserve and a 50/50 split between borrower and B note capital event. The loan is performing under the modification and the servicer-reported debt service coverge ratio (DSCR) is 1.54x on the A note. As per the property's rent roll, the occupancy was 90.1% as of June 2014.

RATING SENSITIVITIES
Rating Outlooks on classes A-3 and A-1A remain Stable resulting from increasing credit enhancement and continued paydown. Rating Outlooks on classes A-MFX and A-MFL remain Negative due to concerns with several highly leveraged loans within the top 15, including some in weak markets. Additionally, the continued lack of progress in resolving specially serviced loans, including the uncertainty related to the final disposition of the PCV/ST loan, may lead to volatility in expected losses.

Fitch downgrades the following classes as indicated:

--\\$221.9 million class A-MFX to 'AAsf' from 'AAAsf'; Outlook Negative;
--\\$20 million class A-M to 'AAsf' from 'AAAsf'; Outlook Negative.

Fitch affirms the following classes as indicated:

--\\$811.7 million class A-3 at 'AAAsf'; Outlook Stable;
--\\$451.4 million class A-1A at 'AAAsf'; Outlook Stable;
--\\$102.6 million class A-JFX at 'CCCsf'; RE 85%;
--\\$100 million class A-JFL at 'CCCsf'; RE 85%;
--\\$21.2 million class B at 'CCsf'; RE 0%;
--\\$27.2 million class C at 'CCsf'; RE 0%;
--\\$21.2 million class D at 'CCsf'; RE 0%;
--\\$15.1 million class E at 'CCsf'; RE 0%;
--\\$18.1 million class F at 'Csf'; RE 0%;
--\\$30.2 million class G at 'Csf'; RE 0%;
--\\$24.2 million class H at 'Csf'; RE 0%;
--\\$24.2 million class J at 'Csf'; RE 0%;
--\\$26.5 million class K at 'Dsf'; RE 0%;
--\\$0 class L at 'Dsf'; RE 0%;
--\\$0 class M at 'Dsf'; RE 0%;
--\\$0 class N at 'Dsf'; RE 0%;
--\\$0 class O at 'Dsf'; RE 0%;
--\\$0 class P at 'Dsf'; RE 0%;
--\\$0 class Q at 'Dsf'; RE 0%.

The class A-1, A-2 and A-AB certificates have paid in full. Fitch does not rate the class S certificates. Fitch previously withdrew the rating on the interest-only class X certificates.

Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 10, 2014 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:

Structured Finance >> CMBS >> Criteria Reports