NEW YORK (Standard & Poor's) Aug. 23, 2002--Standard & Poor's Ratings Services today lowered its ratings on three DR Structured Finance Corp. credit lease transactions related to Kmart Corp. (Kmart) to single-'C' from triple-'C'. At the same time, the ratings are removed from CreditWatch with negative implications, where they were placed Jan. 15, 2002 (see list). The rating actions are due to underlying lease payment defaults, which have resulted in the undercollateralization of the securities. It is anticipated that the undercollateralization will increase going forward, and that ultimate principal losses will likely be experienced on one or more classes of the certificates.
In each transaction, Kmart net leased properties that secure the mortgage notes that collateralize the rated securities. Fifteen of the leases were rejected in conjunction with Kmart's bankruptcy filing. The rejections resulted in payment shortfalls on the underlying mortgage notes. A portion of the principal payments received on the mortgage loans were diverted to pay full and timely interest on the certificates, which resulted in the transactions becoming undercollateralized.
In series 1993 K-1, four of 27 leases were rejected; in series 1994 K-1, nine of 34 leases were rejected; and in series 1994 K-2, two of 10 leases were rejected. The shortfalls occurred when full principal and interest payments were not received on the mortgage loans, which were impacted by the lease
rejections.
The next scheduled payment for all of the transactions is Feb. 15, 2003.
RATINGS LOWERED AND REMOVED FROM CREDITWATCH NEGATIVE
DR Structured Finance Corp.
Lease trust pass-thru certs series 1993 K-1
Rating
Class To From
A-1, A-2 C CCC-/Watch Neg
DR Structured Finance Corp.
Lease trust pass-thru certs series 1994 K-1
Rating
Class To From
A-1, A-2, A-3 C CCC-/Watch Neg
DR Structured Finance Corp.
Lease trust pass-thru certs series 1994 K-2
Rating
Class To From
A1, A2 C CCC-/Watch Neg
Contact: Eric Thompson, New York (1) 212-438-2620
Roy Chun, New York (1) 212-438-2430
Adam M. Tempkin
Media Relations Manager, Structured Finance
Standard & Poor's
55 Water Street, 41st Floor
New York, NY 10041-0003
Phone: 212-438-7530
Fax: 212-438-7541
adam_tempkin@standardandpoors.com
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