Fitch Upgrades 2 Classes of ARCap 2003-1

NEW YORK--()--Fitch Ratings has upgraded two and affirmed seven classes issued by ARCap 2003-1 Resecuritization, Inc. (ARCap 2003-1). A complete list of rating actions follows at the end of this press release.

KEY RATING DRIVERS:

The upgrades are due to continued deleveraging, increasing credit enhancement, and paydowns from collateral previously rated below 'CCC.' Since the last rating action in April 2013, approximately 4.72% of the collateral has been downgraded and none has been upgraded. Over this period, the transaction has received $22.2 million in pay downs and experienced $9.2 million in losses. Currently, 79.12% of the portfolio has a Fitch derived rating below investment grade, and 47.58% has a rating in the 'CCC' category and below, compared to 83.4% and 56.1%, respectively, at the last rating action. Since issuance the transaction has experienced $123.2 million in cumulative principal losses.

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 report 'Global Criteria for Cash Flow Analysis in CDOs'. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Based on this analysis, the class B and C notes' breakeven rates are generally consistent with the ratings assigned below.

For the class D through K 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 'CCCsf', indicating that default is possible. Similarly, the class E through K notes have been affirmed at 'Csf', indicating that default is inevitable.

RATING SENSITIVITIES

The Stable Outlook on the class B and C notes reflects Fitch's view that the transaction will continue to delever. 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.

ARCAP 2003-1 is backed by 22 bonds from 11 commercial mortgage backed securities (CMBS) transactions and is considered a CMBS B-piece resecuritization (also referred to as first loss commercial real estate collateralized debt obligation [CRE CDO]/ReREMIC) as it includes the most junior bonds of CMBS transactions. The transaction closed Aug. 27, 2003.

Fitch has upgraded the following classes:

--$24,026,590 class B notes to 'BBsf' from 'Bsf', Outlook Stable;

--$20,500,000 class C notes to 'Bsf' from 'CCCsf', Outlook Stable assigned.

Fitch has affirmed the following classes:

--$15,400,000 class D notes at 'CCCsf';

--$36,100,000 class E notes at 'Csf';

--$13,000,000 class F notes at 'Csf';

--$45,000,000 class G notes at 'Csf';

--$9,000,000 class H notes at 'Csf';

--$28,000,000 class J notes at 'Csf';

--$24,000,000 class K notes at 'Csf'.

The class A notes have paid in full. Fitch does not rate the class L or class X notes.

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 12, 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=825363

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Contacts

Fitch Ratings
Primary Analyst
Valerie Jayson
Associate Director
+1-312-368-3116
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relation:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Valerie Jayson
Associate Director
+1-312-368-3116
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relation:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com