Fitch Upgrades 2 and Affirms 2 Classes of Crest 2003-1 Ltd./Corp.

NEW YORK--()--Fitch Ratings has upgraded two and affirmed two classes issued by Crest 2003-1 Ltd./Corp. (Crest 2003-1) as a result of significant paydowns to the senior notes. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The upgrades are primarily due to the deleveraging of the transaction resulting from the significant paydown since Fitch's last rating action in January 2013. Since the last rating action, approximately 3.61% of the collateral has been downgraded and 20.8% has been upgraded. Currently, 85.7% of the portfolio has a Fitch derived rating below investment grade and 62.3% has a rating in the 'CCC' category and below, compared to 72.9% and 53.7%, respectively, at the last rating action. Over this period, the transaction has received $63.9 million in pay downs, which has resulted in the full repayment of the class B notes.

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 same report. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. The class C notes have been upgraded to reflect the likelihood of continued delevering over the next year; however the upgrade was limited due to increased risk for interest shortfall as a result of increased concentration and adverse selection.

For the class D notes, 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 D notes have been affirmed at 'Csf', indicating that default is inevitable.

RATING SENSITIVITY

In addition to those sensitivities discussed above, 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. The senior notes are expected to continue to amortize as 17% of the collateral are senior positions in their respective underlying transactions. The Stable Outlook on the class C notes reflects Fitch's view that the transaction will continue to delever.

Crest 2003-1 is a static cash flow collateralized debt obligation (CDO), which closed March 13, 2003. The collateral is composed of 100% commercial mortgage backed securities (CMBS). The transaction is collateralized by 24 assets from 13 obligors.

Fitch has taken the following actions:

--$7,367,465 class C-1 notes upgraded to 'Bsf' from 'CCCsf'; assigned Outlook Stable;

--$12,366,817 class C-2 notes upgraded to 'Bsf' from 'CCCsf'; assigned Outlook Stable;

--$11,405,651 class D-1 notes affirmed at 'Csf';

--$67,727,471 class D-2 notes affirmed at 'Csf'.

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' (Sept. 13, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718027

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814854

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Contacts

Fitch Ratings
Primary Surveillance Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations:
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Surveillance Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations:
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com