NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed six classes of notes issued by NewStar Commercial Loan Trust 2006-1 (NewStar 2006-1) as follows:
--$133,128,431 class A-1 notes at 'AAAsf'; Outlook Stable;
--$17,956,698 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 Stable;
--$13,750,000 class E notes at 'BBsf'; Outlook Stable.
Key Rating Drivers
The affirmations of the notes are based on the stable performance of the transaction since Fitch's last rating review in August 2012. Fitch has also maintained the Outlooks on all classes of notes to reflect its expectation that the performance of the portfolio and the outstanding liabilities will remain stable in the near term. 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 2013 report, the weighted average rating factor (WARF) remained stable at 'B/B-'. The amount of assets that Fitch considers 'CCC' and below has increased to 34.9% from 29% of the performing portfolio. However, approximately 11.1% was considered 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 certificate holders 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 certificate holders resumed receiving excess interest proceeds on the March 2011 payment date. On the most recent payment date, approximately $1.2 million were charged-off from the portfolio, and excess spread was diverted to pay down the class A notes through the APA feature. The current APA balance is zero.
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. 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 60% 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 or above their credit ratings.
The performance of the portfolio may be sensitive to significant credit deterioration or distressed recoveries of the portfolio. The notes may also be sensitive to increasing concentration risks as the portfolio continues to amortize. Fitch will continue to monitor the transaction regularly and as warranted by such events.
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 94% corporate loans, primarily to middle-market issuers, 5.5% commercial real estate loans, and 0.5% 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 81.1% of the performing loans. Information for the model-based credit opinions was gathered from financial statements provided to Fitch by NewStar.
The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, and the public domain.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);
--'Counterparty Criteria for Structured Finance Transactions' (May 13, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions