NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the class A1 notes issued by Banc of America Funding 2013-R1 Ltd. (BAFC 2013-R1), as follows:
--$102,028,626 class A1 notes to 'Asf' from 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
The upgrade is attributed to the improved credit enhancement (CE) available to the class A1 notes as a result of the deleveraging of the capital structure since the transaction's close, as well as the notes' robust performance under Fitch's cash flow analysis.
The class A1 notes of BAFC 2013-R1 have received approximately $61.7 million, or 37.7% of their initial rated balance, in principal redemptions since the transaction's close. In part, these distributions are the result of excess interest proceeds which are diverted to amortize the class A1 notes before paying interest accrued on the subordinate certificates.
Fitch's cash flow analysis projected the class A1 notes to pay in full and receive timely interest in all scenarios, further described below. However, the class A1 may extend past a two year horizon with a slowdown in RMBS prepayments. This may expose the class to potential rating volatility in a stressed economic scenario given the historical underperformance of the predominantly 2005 and 2006 vintage RMBS bonds. Such volatility would generally be inconsistent with a high investment grade rating above 'Asf'.
The rating of the class A1 notes remains sensitive to any potential changes of Fitch's future recovery expectations for the underlying assets.
Fitch's review was conducted under the same analytical framework incorporated at the transaction's close. The analysis focused on evaluating recoveries from the underlying RMBS collateral and assessing the impact of the structural features at the CDO and repack level.
For this review, cash flow projections were generated under the 'AAAsf' rating stress, incorporating loss assumptions from Fitch's U.S. RMBS Loan Loss Model Criteria published in December of 2013. The analysis was performed under eight scenarios that represented combinations of front- and back-loaded defaults, historical benchmark and 0% conditional prepayment rate (CPR) prepayment speeds, and up- and flat- interest rate movements, Down-interest rate scenarios were not evaluated because Libor remains at historic lows.
These cash flows were first passed through the priority of payments of West Coast Funding I, Ltd./Corp. (West Coast I) CDO. The distributions to the CDO senior notes, adjusted for the ownership, were then applied to the BAFC 2013-R1 priority of payments.
BAFC 2013-R1 is collateralized by 54.7% of the class A-1a notes and 99.9% of the A-1b notes issued by West Coast I, a 2006 vintage structured finance CDO. Additional credit enhancement for the class A1 in BAFC 2013-R1 was created by diverting interest and principal due to the unrated M notes to the class A1 notes.
A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is available by accessing the report and link indicated below.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Repackaged Senior Structured Finance Notes' (Aug. 02, 2013);
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Structured Finance CDOs' (Sept. 12, 2013);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (June 23, 2013);
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' (April 17, 2012);
--'Banc of America Funding 2013-R1 LTD. - Appendix' (March 28, 2013).
--'U.S. RMBS Rating Criteria' (Jul. 16, 2013);
--'U.S. Residential Mortgage Re-REMIC Criteria' (Aug. 9, 2013);
--'U.S. RMBS Loan Loss Model Criteria -- Amended' (Dec. 23, 2013);
--'U.S. RMBS Cash Flow Analysis Criteria' (April 19, 2013);
--'U.S. RMBS Surveillance Criteria' (Oct. 9, 2013).