Five Classes of RMF 1977-1 Downgraded

Five classes of Red Mountain Funding LLC's commercial mortgage pass-through certificates, series 1997-1, have been downgraded by Fitch Ratings and three others are being placed on watch for a possible downgrade.The downgrades were as follows: $6.4 million class D to BB+ from BBB; $3.2 million class E to BB from BBB-; $8.7 million class F to CCC from BB; $4.0 million class G to CC from B-; and $4.0 million class H to C from CC. Fitch placed classes C, D and E on watch for possible downgrade and removed classes F and G from watch. In addition, Fitch reported that $58.7 million class A-2 remained steady at AAA, interest-only class X-2 also remained steady at AAA; $10.3 million class B remained steady at AA+; and $8.7 million class C remained steady at A+. The downgrades are due to uncertainty related to the resolution of the Fairfield pool (12%). The Fairfield pool, secured by four nursing facilities in Connecticut and operated by Lexington Healthcare Group, is currently 90+ days delinquent. After Lexington filed bankruptcy in March 2003, a receiver appointed by the state was installed at the properties. To date, one of the facilities has been closed. The special servicer is evaluating workout options and large losses are expected. However, since there are several properties in this loan, it might take a while before the loss on this loan is realized. The placement of classes C, D and E on rating watch negative is due to increasing interest shortfalls and the concern with the Fairfield loan.