NEW YORK--()--Fitch Ratings has taken various rating actions on 130 classes from 13 U.S. collateralized debt obligations (CDOs) with exposure to trust preferred securities (TruPS), senior and subordinated debt issued by real estate investment trusts (REITs), homebuilders and specialty finance companies, as well as commercial mortgage backed securities (CMBS) and commercial real estate loans (CREL).
This review was conducted under the analytical framework described in the reports 'Global Surveillance Criteria for Trust Preferred CDOs', 'Global Rating Criteria for Structured Finance CDOs', and 'Global Rating Criteria for Corporate CDOs'. All transactions were analyzed within the framework of Fitch Portfolio Credit Model (PCM) and for each transaction, the PCM rating loss rates for various rating stresses were compared to the notes' credit enhancement levels. The transactions were not analyzed within a cash flow model framework, as the impact of structural features and excess spread was determined to be minimal in the context of these CDO ratings.
Fitch has upgraded the ratings on six classes and affirmed 124 classes of notes. Upgrades to the six classes of notes issued by Attentus CDO I, Ltd., Attentus CDO III, Ltd., Kodiak CDO I, Ltd., and Kodiak CDO II, Ltd. are due to the net positive credit migration in the underlying portfolios and significant paydowns to the senior most classes that led to the increased credit enhancement levels for other classes in these CDOs. The deleveraging in these four transactions was primarily driven by collateral redemptions and sales, and to a smaller extent, excess spread. The PCM-based analysis indicates a higher passing rating for the class A-1A in Attentus CDO III than its current rating of 'Asf'. This class is affirmed due to the risks described below.
Due to a concentrated nature of the portfolios and exposure to the U.S. residential and commercial real estate sectors, these transactions may experience a high level of performance volatility. In addition, all transactions continue to leak proceeds to pay their respective hedge counterparties a fixed leg of out-of-the-money interest rate swaps.
A majority of the classes have been affirmed, generally at the distressed rating level of 'CCsf' and lower. These rating actions reflect the fact that most classes had been downgraded to a 'CCsf' and lower rating levels prior to today's actions. Some transactions experienced net positive credit migration reflecting stabilization in the REIT and homebuilders sectors. However, for the affirmed classes this positive migration has not offset the level of distressed assets, which averaged 27% across all of the 13 CDOs.
Seven out of the 13 transactions are in the Event of Default (EOD), including six CDOs that defaulted due to interest shortfalls to non-deferrable classes. All seven transactions have accelerated their maturity, whereby collection proceeds have been diverted from paying interest to the non-senior classes. Fitch has affirmed non-deferrable notes experiencing interest shortfalls at 'Dsf', as the shortfalls are expected to continue in the foreseeable future.
Please refer to the report titled 'Fitch Takes Various Rating Actions on 130 Classes from 13 U.S. REIT TruPS CDOs' for details on specific rating actions.
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 trustee reports, collateral manager reporting Web sites and the public domain.
Applicable Criteria and Related Criteria:
--'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. 3, 2012);
--'Global Surveillance Criteria for Trust Preferred CDOs' (July 11, 2012).
Applicable Criteria and Related Research: Fitch Takes Various Rating Actions on 130 Classes from 13 U.S. REIT TruPS CDOs
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Global Rating Criteria for Structured Finance CDOs
Global Surveillance Criteria for Trust Preferred CDOs