Because of the Stuy-Town/Peter Cooper Village loan's 'underperformance', Fitch downgraded those four CMBS transactions on Friday. They said the outcome of ongoing Stuyvesant Town litigation could have future ratings implications for the four transactions.

In July, Fitch is incorporating prospective stresses in forecasting losses, assuming 15% property income declines and 35% peak to trough property value declines. "Continued macroeconomic deterioration will result in further loan performance declines, though we will not see the full effect immediately," said managing director Mary MacNeill in a statement that month.

Back on the ground, this past March, an appeals court ruled that Stuy-Town and Peter Cooper's landlord raised rents and deregulated apartments after getting special tax breaks. News reports speculated that a decision against them could cost landlord Tishman Speyer as well as former landlord Metropolitan Life more than $200 million in restitution.

The court had also imposed a "moratorium on conversion" which has reduced capital expenditures. However, the use of debt service reserves has increased because the court also requires the borrower to seperately escrow the difference between stabilized and market rents on former stabilized units.

Fitch said it believes the ultimate value of the properties will be, in large part, determined by the lawsuit's resolution.

Senior director Adam Fox says in a statement that "based on current performance and uncertainty surrounding ongoing litigation, we do not expect property performance to improve sufficiently to service the securitized portion of the $4.5-billion debt before reserves are depleted."

According to Fitch, in addition to securitized debt, there's $1.5 billion of mezzanine debt held outside the trust. For the year ended 2008 ,the servicer reported debt service coverage ratio on the mortgage was 0.69 times as compared to the year ended 2007 DSCR of 0.55x.