NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded eight classes issued by N-Star Real Estate CDO VII, Ltd. (N-Star CDO VII) as a result of significant deterioration of the underlying collateral. A complete list of rating actions follows at the end of this release.
SENSITIVITY/RATING DRIVERS:
Since the last rating action in
February 2012, approximately 48.4% of the collateral has been downgraded
and 1.8% has been upgraded. Currently, 95.8% of the portfolio has a
Fitch derived rating below investment grade and 81.9% has a rating in
the 'CCC' category and below, compared to 85.5% and 55.5%, respectively,
at the last rating action. Over this period, the transaction has
experienced $100.1 million in losses from the sale of credit risk
securities by the asset manager.
This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. None of the notes' breakeven rates met the 'CCC' hurdle in the cash flow model.
For all notes in the transaction, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, the class A-1 notes have been downgraded to 'CCCsf', indicating that default is possible. Similarly, the class A-2 notes have been downgraded to 'CCsf', indicating that default is probable and the class A-3 through E notes have been downgraded to 'Csf', indicating that default is inevitable. Further, given the increased amount of underlying collateral experiencing interest shortfalls, there is heightened risk that CDO proceeds will be insufficient to pay the periodic timely interest.
N-Star CDO VII is a collateralized debt obligation (CDO) which closed June 22, 2006. The transaction is collateralized by 84 assets from 62 obligors. The portfolio is composed of 78.8% commercial mortgage-backed securities (CMBS); 20.1% of SF CDOs; and 1.1% residential mortgage-backed securities (RMBS).
Fitch has downgraded the following classes as indicated:
--$93,635,649 class A-1 notes to 'CCCsf' from 'BBsf';
--$54,250,000
class A-2 notes to 'CCsf' from 'Bsf';
--$50,000,000 class A-3 notes
to 'Csf' from 'CCCsf';
--$30,300,000 class B notes to 'Csf' from
'CCCsf';
--$22,154,623 class C notes to 'Csf' from 'CCsf';
--$14,215,356
class D-FL notes to 'Csf' from 'CCsf';
--$2,130,453 class D-FX
notes to 'Csf' from 'CCsf';
--$17,705,702 class E notes to 'Csf'
from 'CCsf'.
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.
Applicable Criteria and Related Research:
--'Global Structured
Finance Rating Criteria' (June 6, 2012);
--'Global Rating Criteria
for Structured Finance CDOs' (Oct. 3, 2012);
--'Global Criteria for
Cash Flow Analysis in CDOs' (Sept. 13, 2012).
Applicable Criteria and Related Research:
Global Criteria for Cash
Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518
Global
Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=690203
Global
Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923
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