Fitch Upgrades 1 and Affirms 2 Classes of Arroyo I CDO, Ltd.

CHICAGO--()--Fitch Ratings has upgraded one and affirmed two classes of notes issued by Arroyo I CDO, Ltd. (Arroyo I). The rating actions are as follows:

--$4,176,096 class B notes upgraded to 'AAsf' from 'Asf', Outlook remains Stable;

--$10,673,643 class C-1 notes affirmed at 'CCCsf';

--$18,883,867 class C-2 notes affirmed at 'CCCsf'.

KEY RATING DRIVERS

The upgrade and affirmations are based on the stable performance of the portfolio combined with the continued amortization of the notes increasing credit enhancement (CE) levels to all the classes.

Since Fitch's last rating action in March 2013, the credit quality of the collateral has remained stable, with one asset comprising approximately 3.7% of the portfolio downgraded 1.0 notch and 6.3% upgraded a weighted average of 1.8 notches. Approximately 62.9% of the current portfolio has a Fitch derived rating below investment grade and 38.5% has a rating in the 'CCCsf' rating category or lower, compared to 61.6% and 36.7%, respectively, at last review.

The class B notes have received approximately $11.4 million in principal repayment, or 73.2% of its previous balance, since the last review, leaving 10.8% of the original balance outstanding. The upgrade of the class B notes is in line with the breakeven levels from the cash flow model.

The class C notes are currently receiving their periodic interest due; however, they still have $3.6 million of deferred interest outstanding. The affirmation of the class C notes is in line with the breakeven levels from the cash flow model.

RATING SENSITIVITIES

Further negative migration and defaults beyond those projected in the SF PCM as well as increasing concentration in assets of a weaker credit quality could lead to future downgrades. Continuing amortization accompanied by better than expected cash flows from distressed assets could lead to an upgrade.

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.

Additional information is available at 'www.fitchratings.com'.

The information used to assess these ratings was sourced from the issuer, periodic trustee 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' (Sept. 12, 2013);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 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

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822072

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Contacts

Fitch Ratings
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com
or
Primary Surveillance Analyst
Bradley Howe, CFA, +1-312-368-2081
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Alina Pak, CFA, +1-312-368-3184
Senior Director

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Contacts

Fitch Ratings
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com
or
Primary Surveillance Analyst
Bradley Howe, CFA, +1-312-368-2081
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Alina Pak, CFA, +1-312-368-3184
Senior Director