NEW YORK--()--Fitch Ratings has affirmed six classes of notes issued by NewStar Commercial Loan Trust 2007-1 (NewStar 2007-1) and revised the Rating Outlooks on three classes. A full list of rating actions follows at the end of this release.
The affirmations are based on the stable performance of the transaction since Fitch's last rating action in September 2011. Credit enhancement levels have increased slightly for all classes in the transaction. According to the current loan tape, the portfolio has no charged-off loans, compared to 3.6% at last review. The portfolio credit quality has remained generally unchanged from the last review, with a weighted average rating factor (WARF) of 'B/B-'. In addition, Fitch considers approximately 16.1% of the total commitments of the July 2012 portfolio in the 'CCC' category or below, compared to 15.9% in the last review. However, approximately 3.8% were considered at 'CCC' due to the lack of rating information. The transaction is still in its reinvestment period, which is scheduled to end in May 2013.
The notes of NewStar 2007-1 benefit from the 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 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 February 2010 payment date, and as a result, the certificateholders resumed receiving excess interest proceeds on the August 2010 payment date. Fitch has revised the Outlooks on the class C, 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'. All the notes passed the various stress scenarios at rating levels in line with their current ratings, which supported the affirmations.
NewStar 2007-1 is a collateralized debt obligation (CDO) that closed on June 5, 2007 and is managed by NewStar Financial, Inc. (NewStar). The transaction's reinvestment period is scheduled to end in May 2013, and its maturity date is in September 2022. NewStar 2007-1 is secured by a portfolio comprised of 96.5% corporate loans, primarily to middle-market issuers, and 3.1% commercial real estate loans, and 0.3% CLOs, based on the total commitment amounts. The majority of these loans are not publicly rated. Instead, Fitch's leveraged finance group provided model-based credit opinions for 83.8% 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 revises Outlooks as indicated:
--$318,104,654 class A-1 notes at 'AAAsf'; Outlook Stable;
--$62,389,693 class A-2 notes at 'AAAsf'; Outlook Stable;
--$24,000,000 class B notes at 'AAsf'; Outlook Stable;
--$58,500,000 class C notes at 'Asf'; Outlook to Stable from Negative;
--$27,000,000 class D notes at 'BBB+sf'; Outlook to Stable from Negative;
--$29,100,000 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