Fitch Takes Various Rating Actions on 48 U.S. Small-Balance CMBS Deals

NEW YORK--()--Link to Fitch Ratings' Report: U.S. Small-Balance CMBS Rating Actions for April 4, 2014 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=745337

Fitch Ratings has taken various rating actions on 48 U.S. structured finance transactions. The transactions reviewed consisted of 30 Small Balance Commercial (SBC) transactions and 18 transactions sponsored by affiliated entities of Bayview Asset Management, LLC (Bayview). The Bayview transactions include Re-securitization and revolving trust transactions primarily collateralized with small-balance commercial and mixed-use loans.

Rating Action Summary:

--398 classes (97%) affirmed;

--Three classes (1%) upgraded;

--Six classes (2%) downgraded.

A spreadsheet detailing the actions can be found on Fitch's website by performing a title search for 'U.S. Small-Balance CMBS Rating Actions for April 4, 2014' or by clicking the link.

KEY RATING DRIVERS

Performance has remained stable for transactions in this review over the past year. On average, the expected loss (XL) on the remaining pool balances for both the SBC and Bayview transactions has decreased by roughly 1%. The improvement is driven by a drop in the probability of default (PD) assumption, reflecting the improvement in the percent of loans that are seriously delinquent. The loss severity (LS) assumptions have remained flat since the prior review.

All of the downgrades in this review were one category below their current rating. The downgrades did not affect any investment grade ratings. Out of the six downgrades, three were from 'Bsf' to 'CCCsf'.

All upgrades were limited to one rating category above their prior rating due to historical cash flow volatility within the sectors reviewed. The upgrades were driven by stable-to-improving collateral performance and, in some cases, sequential-pay cashflow features that are expected to pay off the upgraded classes within a relatively short timeframe. Upgrades were further constrained by projected months to pay off. No class rating was upgraded to investment grade if it was projected to pay off in more than five years.

RATING SENSITIVITIES:

A detailed list of Fitch's updated PD, LS, and XL can be found by performing a title search for 'RMBS Loss Metrics' at www.fitchratings.com. The report provides a summary of base-case and stressed scenario projections.

Fitch uses pool level collateral data to analyze the SBC, and Bayview transactions.

The PD for SBC transactions is based on the Alt-A vintage average derived from Fitch's non-prime loss model. The LS is determined by each issuer's 12-month historical average and typically ranges from 65%-80% in the base case. Fitch's cashflow analysis assumes prepayment, loss-timing and servicer advancing behavior consistent with Alt-A sector vintage averages.

When it is not possible to run cash flow analysis on SBC transactions, Fitch will compare the credit enhancement (CE) to the expected loss in each rating stress. In order for a class to be affirmed, its CE must exceed the expected loss in its current rating stress.

For the Bayview transactions where the underlying collateral is small balance commercial/mixed assets, the default assumptions are based off of the Alt-A vintage default assumptions from Fitch's non-prime loss model and are adjusted for pool specific product composition and performance. For the remaining asset types, Fitch uses the subprime vintage default assumptions from Fitch's non-prime loss model adjusted for pool specific product composition and performance.

For the Bayview transactions, Fitch assumes a 75% to 90% LS for first liens and a 100% LS for second liens.

The Bayview cash flow analysis assumes Fitch's benchmark default and prepayment curves, servicer advance rate consistent with Alt-A or subprime averages and a haircut to the weighted average loan coupons in the 'Asf-AAAsf' rating stresses.

Fitch's analysis includes rating stress scenarios from 'CCCsf' to 'AAAsf'. The 'CCCsf' scenario is intended to be the most-likely base-case scenario. Rating scenarios above 'CCCsf' are increasingly more stressful and less-likely to occur. Although many variables are adjusted in the stress scenarios, the primary driver of the loss scenarios is the home price forecast assumption. In the 'Bsf' scenario, Fitch assumes home prices decline 10% below their long-term sustainable level. The home price decline assumption is increased by 5% at each higher rating category up to a 35% decline in the 'AAAsf' scenario.

In addition to increasing mortgage pool losses at each rating category to reflect increasingly stressful economic scenarios, Fitch analyzes various loss-timing, prepayment, loan modification, servicer advancing, and interest rate scenarios as part of the cash flow analysis. Each class is analyzed with 43 different combinations of loss, prepayment and interest rate projections.

Classes currently rated below 'Bsf' are at-risk to default at some point in the future. As default becomes more imminent, bonds currently rated 'CCCsf' and 'CCsf' will migrate towards 'Csf' and eventually 'Dsf'.

The ratings of bonds currently rated 'Bsf' or higher will be sensitive to future mortgage borrower behavior, which historically has been strongly correlated with home price movements. Despite recent positive trends, Fitch currently expects home prices to decline further in some regions before reaching a sustainable level. While Fitch's ratings reflect this home price view, the ratings of outstanding classes may be subject to revision to the extent actual home price and mortgage performance trends differ from those currently projected by Fitch.

The spreadsheet 'U.S. Small-Balance CMBS Rating Actions for April 4, 2014' provides the contact information for the performance analyst.

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

Applicable Criteria and Related Research:

--'U.S. RMBS Surveillance Criteria' (Oct. 10, 2013);

--'Global Structured Finance Rating Criteria' (May 24, 2013);

--'U.S. RMBS Loan Loss Model Criteria' (Aug. 9, 2013);

--'U.S. RMBS Cash Flow Analysis Criteria' (April 19, 2013);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);

--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (June 12, 2013);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);

--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826261

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Presenting Analyst
Ryan O'Loughlin, +1-212-908-0387
Analyst
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Presenting Analyst
Ryan O'Loughlin, +1-212-908-0387
Analyst
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Grant Bailey, +1-212-908-0544
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com