NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 19 and upgraded 2 classes from six structured finance collateralized debt obligations (SF CDOs) with exposure to various structured finance assets.
The rating action report, titled 'Fitch Takes Various Rating Actions on 6 SF CDOs', dated Oct. 11, 2013, details the individual rating actions for each rated CDO. It can be found on Fitch's website at 'www.fitchratings.com' by performing a title search or by using the link below. For further information and transaction research, please refer to 'www.fitchratings.com'.
This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs'. None of the six reviewed transactions have been analyzed within a cash flow model framework, as the impact of structural features and excess spread, or conversely, principal proceeds being used to pay CDO liabilities and hedge payments, were determined to be minimal in the context of these CDO ratings.
KEY RATING DRIVERS
The key rating drivers for these rating actions are attributed to the performance of the underlying assets, coupled with the impact of deleveraging of the capital structures, as well as the concentrated nature of the portfolios.
All transactions experienced paydowns to the senior most classes due to principal amortizations and, in some cases, excess spread from a failing overcollateralization ratio. On average, these senior classes received approximately 30.5% in principal paydowns since the last review. However, this continued deleveraging also increased portfolio concentration for all six transactions. Given these offsetting factors, a majority of the rating actions on these classes have been affirmations.
For transactions where expected losses from distressed and defaulted assets in the portfolio (rated 'CCsf' and lower) already significantly exceed the credit enhancement (CE) level of the most senior class of notes, Fitch believes that the probability of default for all classes of notes can be evaluated without factoring potential further losses from the remaining portion of the portfolios. Therefore, these transactions were not modeled using the Structured Finance Portfolio Credit Model (SF PCM).
For Porter Square CDO I, Ltd. and Coast Investment Grade 2002-1, Ltd. where expected losses from distressed assets do not exceed the CE levels of the senior classes of notes, Fitch used the SF PCM to project future losses from each transaction's portfolio and compared them to the CE levels of the notes. Under this analysis, the class B notes of Porter Square CDO I, Ltd. and the class B notes of Coast Investment Grade 2002-1, Ltd. were both upgraded as they are currently passing at PCM RLR levels consistent with a 'CCCsf' rating. The credit enhancement levels available to both classes have also increased since the last review to sufficiently offset the credit deterioration of their underlying portfolios.
These six transactions have limited sensitivity to further negative migration given the highly distressed rating levels of the outstanding notes. However, there is potential for non-deferrable classes to be downgraded to 'Dsf' should they experience any interest payment shortfalls.
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 Structured Finance CDOs' (Sep. 12, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum' (May 13, 2013).
Applicable Criteria and Related Research: Fitch Takes Various Rating Actions on 6 SF CDOs
Global Structured Finance Rating Criteria
Global Rating Criteria for Structured Finance CDOs
Counterparty Criteria for Structured Finance and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum