NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded and assigned an Outlook to one and affirmed four classes of notes issued by Glacier Funding CDO II, Ltd. (Glacier Funding II), as follows:
--$48,290,985 class A-1 notes upgraded to 'Bsf' from 'CCCsf'; assigned Outlook Positive;
--$70,000,000 class A-2 notes affirmed at 'Dsf';
--$65,750,000 class B notes affirmed at 'Dsf';
--$23,255,230 class C notes affirmed at 'Csf';
--$6,461,649 class D notes affirmed at 'Csf'.
This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Structured Finance Portfolio Credit Model (SF PCM) for projecting future default levels for the underlying portfolio. These default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs' for the class A-1 notes. Fitch also considered additional qualitative factors in its analysis, as described below, to conclude the rating affirmations for the rated notes.
KEY RATING DRIVERS
The upgrade of the class A-1 notes is due to significant paydowns to the notes from both principal amortization of the underlying portfolio and excess spread as a result of acceleration. Since the last review, the class A-1 notes received approximately $19.2 million, or 28.4% of their previous balance, with $2.9 million of that amount coming from excess spread. The upgrade is further supported by the improved cash flow modeling results, which now indicate that the notes are passing at higher breakevens than the 'Bsf' rating category. Additionally, the interest rate swap has expired in this transaction as of February 2013, increasing the amount of excess spread available to pay down the notes. These notes were not upgraded higher than 'Bsf' due to concerns of potential negative migration and concentration risk as the portfolio continues to amortize.
The Positive Outlook on the class A-1 notes reflects Fitch's view that the transaction will continue to delever and that the class has sufficient credit enhancement to offset potential deterioration of the underlying collateral going forward and may be upgraded in the next one to two years. Fitch does not assign Outlooks to classes rated 'CCCsf' or below.
The non-deferrable class A-2 and class B notes have not received their accrued interest since June 2011, when the transaction accelerated. Since then all proceeds have been diverted to redeem the class A-1 notes. These missed interest payments constitute a payment default; therefore, these two classes are affirmed at 'Dsf'.
The class C and class D notes remain significantly undercollateralized, indicating that default continues to appear inevitable at or prior to maturity.
Further negative migration and defaults beyond those projected by SF PCM as well as increasing concentration in assets of a weaker credit quality could lead to downgrades.
Glacier Funding II is a structured finance collateralized debt obligation (SF CDO) that closed on Oct. 12, 2004 and is now monitored by Aventine Hill Capital, LLC., as a successor collateral manager. The portfolio is comprised of residential mortgage-backed securities (69.4%), commercial mortgage-backed securities (24.2%), structured finance collateralized debt obligations (4.3%), consumer and commercial asset-backed securities (1.4%), and real estate investment trusts (.7%) from 2004 vintage transactions.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, note valuation reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 3, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Structured Finance CDOs
Global Criteria for Cash Flow Analysis in CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions