NEW YORK--()--Fitch Ratings has affirmed six classes of notes issued by NewStar Commercial Loan Trust 2006-1 (NewStar 2006-1). Fitch has also revised Rating Outlooks on two classes of notes. A full list of rating actions follows at the end of this release.
The affirmations of the notes are based on the stable performance of the transaction since Fitch's last rating review in September 2011. The credit enhancement has increased on all the notes due to the principal repayments of the class A-1 and A-2 notes (collectively, the class A notes). According to the June 2012 report, the weighted average rating factor (WARF) of the portfolio remained unchanged at 'B/B-'. The amount of assets that Fitch considers 'CCC' and below has increased to 25.3% from 23.3%. However, approximately 4.1% was treated at 'CCC' due to the lack of rating information.
The notes of NewStar 2006-1 benefit from credit enhancement in the form of collateral coverage, note subordination, and the application of excess spread via the additional principal amount (APA). For every dollar that is charged off of the performing portfolio, the APA feature directs the excess interest proceeds and recoveries from charged-off loans otherwise available to the certificateholders to pay down the senior-most notes in an amount equal to the charged-off amount. The APA completely paid off on the December 2010 payment date, and as a result, the certificateholders resumed receiving excess interest proceeds on the March 2011 payment date.
Fitch has revised the Outlooks on the class D and E notes to reflect its expectation that the performance of the portfolio and the outstanding liabilities will remain stable in the near term.
This review was conducted under the framework described in the report 'Global Rating Criteria for Corporate CDOs' using the Portfolio Credit Model (PCM) for projecting future default and recovery levels for the underlying portfolio. These default and recovery levels were then utilized in Fitch's cash flow model under various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. The default timing scenarios were also adjusted, since the weighted average life of the portfolio was approximately three years. As a result, Fitch assumed that a peak of 70% of the defaults would occur in the first, second, and third year for the front, middle, and back default timing, respectively. All the notes passed the various stress scenarios at rating levels in line with their credit ratings, which supported the affirmations.
NewStar 2006-1 is a collateralized debt obligation (CDO) that closed on June 8, 2006 and is managed by NewStar Financial, Inc. (NewStar). The transaction's reinvestment period ended in June 2011 and its legal final maturity date is in March 2022. NewStar 2006-1 is secured by a portfolio comprised of 96.0% corporate loans, primarily to middle-market issuers, 3.6% commercial real estate loans, and 0.4% in structured finance assets, based on total commitment amounts. The majority of these loans are not publicly rated. Instead, Fitch's leveraged finance group provided model-based credit opinions for approximately 82.6% of the performing loans. Information for the model-based credit opinions was gathered from financial statements provided to Fitch by NewStar.
Fitch affirms the following and revised Outlooks as indicated:
--$206,753,829 class A-1 notes at 'AAAsf'; Outlook Stable;
--$27,670,397 class A-2 notes at 'AAAsf'; Outlook Stable;
--$22,500,000 class B notes at 'AAsf'; Outlook Stable;
--$35,000,000 class C notes at 'Asf'; Outlook Stable;
--$25,000,000 class D notes at 'BBBsf'; Outlook to Stable from Negative;
--$13,750,000 class E notes at 'BBsf'; Outlook to Stable from Negative.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2012);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 6, 2011);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 15, 2011);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 20, 2012).
Applicable Criteria and Related Research:
Criteria for Interest Rate Stresses in Structured Finance Transactions
Global Criteria for Cash Flow Analysis in CDOs
Global Rating Criteria for Structured Finance CDOs
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria