Fitch Downgrades & Removes 17 Classes of ACAS CRE CDO 2007-1 from Rating Watch Negative

Business Wire, April 25, 2008

NEW YORK -- Fitch Ratings has downgraded 17 classes of ACAS CRE CDO 2007-1 Ltd./LLC, (ACAS CRE CDO 2007-1) as follows:

--$181.5 million class A to 'AA' from 'AAA';

--$86.3 million class B to 'A' from 'AA ';

--$41.0 million class C-FL to 'BBB' from 'AA';

--$11.9 million class C-FX to 'BBB' from 'AA';

--$25.3 million class D to 'BBB' from 'AA-';

--$23.8 million class E-FL to 'BB' from 'A ';

--$23.8 million class E-FX to 'BB' from 'A ';

--$32.0 million class F-FL to 'BB' from 'A';

--$32.0 million class F-FX to 'BB' from 'A';

--$22.2 million class G-FL to 'BB' from 'A-';

--$26.6 million class G-FX to 'BB' from 'A-';

--$64.6 million class H to 'B' from 'BBB ';

--$41.1 million class J to 'B' from 'BBB';

--$42.3 million class K to 'B' from 'BBB-';

--$62.2 million class L to 'B-' from 'BB ';

--$35.2 million class M to 'B-' from 'BB'; and

--$5.9 million class N to 'B-' from 'BB-'.

Additionally, Fitch removed all downgraded classes from Rating Watch Negative, where they were originally placed on Jan. 16, 2008. The $417.1 million preferred shares are not rated by Fitch.

ACAS CRE CDO 2007-1 is a commercial real estate collateralized debt obligation (CRE CDO) that is backed by commercial mortgage-backed securities (CMBS) B-pieces and that closed on July 24, 2007. CMBS B-piece resecuritizations (also referred to as first loss CRE CDOs/ReREMICs) are CRE CDOs and ReREMIC transactions that include the most junior bonds of CMBS transactions. American Capital CRE Management, LLC selected the initial collateral and serves as the collateral administrator.

The collateral for this CDO consists of high-yielding junior bonds of CMBS transactions. The underlying assets of the CMBS bonds, by their nature, face similar exposures to losses from any downturn in the commercial real estate market as well as refinancing risks at the assets' maturity dates. As a mitigant, however, the underlying CMBS transactions do have significant geographic, property type and tenant diversity.

While Fitch continues to believe investment grade CMBS will perform well even in a heightened stress environment, the risks facing first loss (unrated) and junior rated bonds within the capital structure of CMBS transactions have increased with expectations of a rise in commercial real estate defaults from current low levels. Even a relatively modest increase in CRE losses could be material for these portfolios.

In reviewing CRE CDOs, Fitch has targeted expected losses in different rating stresses based on the quality of the underlying CMBS collateral. The overall expected losses reflect the single sector exposure, the concentrated nature of these portfolios, and the low expected recoveries upon bond default, especially for more junior and thinner classes of CMBS tranches. Additional ratings considerations include seasoning of underlying collateral, obligor diversity, actual bond performance and projected losses. The specific credit characteristics that are factored into Fitch's rating review are discussed below.

ACAS CRE CDO 2007-1 is collateralized by all or a portion of 121 classes of fixed-rate CMBS in 22 separate underlying transactions. All performance and collateral information is based on the March 2008 trustee report and discussions with the collateral administrator. The pool's obligor diversity is considered average for CMBS B-piece resecuritizations, and the vintage distribution of the CMBS collateral ranges from 2005 to 2007 (an average of 1.5 years of seasoning). Approximately 43.0% of the collateral currently is rated below 'B-' or not rated, and, therefore, is more susceptible to losses in the near term. Overall, a significant portion of the collateral is below investment grade with only 0.85% investment grade. ACAS CRE CDO 2007-1 holds 33.5% in the 'BB' category and 22.6% in the 'B' category.

The collateral has no realized losses to date. According to the current trustee report, $62.7 million of the loans in the underlying CMBS transactions, which total $68.6 billion, are currently 60 days or more delinquent.

Fitch conducted cash flow modeling to test the transaction's structure under various default and interest rate stress scenarios. The ratings of the class A, B, C-FL, C-FX, and D notes address the likelihood that investors will receive timely payments of interest, per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class E-FL, E-FX, F-FL, F-FX, G-FL, G-FX, H, J, K, L, M, and N notes address the likelihood that investors will receive ultimate interest payments and the aggregate outstanding amount of principal by the stated maturity as per the deal's governing documents.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.