OREANDA-NEWS. Fitch Ratings has upgraded five classes and affirmed 16 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

Although the credit enhancement has increased due to the payoff of the transaction's pari passu portion of the Stuyvesant Town/Peter Cooper Village (ST/PCV) loan (formerly 13.1% of the pool), there remain concerns with the ultimate resolution of the specially serviced loans (10.1%), of which 48% transferred to the special servicer in 2015.

The recent sale of the ST/PCV asset and the paydown as of the January 2016 remittance resulted in a full recovery of the transaction's $250 million portion of the $3 billion former loan amount and additional 'gain-on sale' proceeds in excess of the total loan balance. The A-1A class balance was reduced by 56% from the principal proceeds, while the 'gain on sale' proceeds of $19 million were used to reimburse interest shortfalls to classes C through K. Interest shortfalls are currently affecting classes K through S.

Fitch modeled losses of 11.3% of the remaining pool. Expected losses on the original pool balance total 11.1%, which is down 15.8% from Fitch's last rating action in February 2015 and includes $83.2 million (3.4% of the original pool balance) in realized losses to date. Fitch has designated 16 loans (14.6%) as Fitch Loans of Concern, which includes 12 specially serviced assets (10.1%).

As of the January 2016 distribution date, the pool's aggregate principal balance has been reduced by 32.6% to $1.63 billion from $2.42 billion at issuance. Per the servicer reporting, seven loans (7.4% of the pool) are defeased. Interest shortfalls are currently affecting classes K through S.

The largest contributor to expected losses is the specially-serviced 275 Broadhollow Road loan (2% of the pool), which is secured by 126,770-square foot (sf) class-B+ office property located in Melville, NY (Long Island). The property is 100% occupied by a single tenant, Capital One N.A. The lease expires December 2018, approximately 23 months after the loan's maturity date in February 2017. The loan transferred to the special servicer in June 2015 due to imminent maturity default. The borrower forwarded a modification proposal, by way of 18 month maturity extension. However, negotiations have concluded, and a modification could not be agreed upon. The current strategy is to correct the loan and return back to the master servicer.

The next largest contributor to expected losses is the 300 Broadhollow Road loan (2.3%), which is secured by a 242,292 sf, class-A, office building also 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 bifurcated into an A/B note structure with a $22 million A note and $14.8 million B note. 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 coverage ratio (DSCR) is 2.21x on the A note. As per the property's rent roll, the occupancy was 98% as September 2015. The expected loss on this loan is primarily due to the A/B note structure making a recovery to the B-note component unlikely in Fitch's view.

The third largest contributor to expected losses is the specially-serviced Medwick Marketplace loan (1.1%), which is secured by a 183,877-sf retail center in Medina, OH, which is approximately 30 miles south of Cleveland. The property was formerly anchored by K-Mart (non-collateral), but the store closed in May 2012, which has caused decreased demand for the space in the center and declining rents. The loan transferred to the special servicer in May 2012 due to imminent default. A loan modification was discussed, but terms could not be agreed upon. The loan is now in monetary default and a receiver has been appointed. The servicer is dual-tracking foreclosure and workout. Major tenants at the property include Marc's (23% of net rentable area; lease expires May 2021), Marshall's (13.6%, November 2019) Deals (6.5%, September 2017) and Shoe Carnival (5.5%, January 2023). According to the September 2015 rent roll, the property is 91% occupied.

RATING SENSITIVITIES

The Rating Outlooks on classes A-3 and A-1A remain Stable due to the senior payment priority in the capital structure and increased credit enhancement. Classes A-MFX through A-JFL have also been assigned Stable Outlooks due to increased credit enhancement. Upgrades to classes A-JFX and A-JFL are possible if the specially serviced assets are disposed and losses are lower than expected. Conversely, downgrades are possible if losses are higher than expected. Additional downgrades to the distressed classes (those rated below 'B') are expected as losses are realized on specially serviced loans.

DUE DILIGENCE USAGE

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

Fitch upgrades, removes from Rating Watch Positive and assigns Rating Outlooks to the following classes as indicated:

--$221.9 million class A-MFX to 'AAAsf' from 'AAsf'; Rating Watch Positive removed; assigned Outlook Stable;
--$20 million class A-M to 'AAAsf' from 'AAsf'; Rating Watch Positive removed; assigned Outlook Stable;
--$102.6 million class A-JFX to 'Bsf' from 'CCCsf'; Rating Watch Positive removed; assigned Outlook Stable;
--$100 million class A-JFL to 'Bsf' from 'CCCsf'; Rating Watch Positive removed; assigned Outlook Stable;
--$21.2 million class B to 'CCCsf' from 'CCsf'; RE 100%.

Fitch affirms the following classes and revises the RE as indicated:

--$27.2 million class C at 'CCsf'; RE 25%.

Fitch affirms the following classes:

--$786.9 million class A-3 at 'AAAsf'; Outlook Stable;
--$200 million class A-1A at 'AAAsf'; Outlook Stable;
--$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%;
--$16.6 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%.

Classes L, M, N, O, P and Q have been reduced to zero due to realized losses and are affirmed 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.