NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded four classes of notes issued by Putnam Structured Product CDO 2001-1, Ltd. (Putnam 2001-1) and maintained Rating Outlooks, as follows:
--$29,078,466 class A-2 notes to 'AAsf' from 'Asf', Outlook Stable;
--$24,000,000 class B notes to 'BBsf' from 'Bsf', Outlook Stable;
--$8,758,096 class C-1 notes to 'CCsf' from 'Csf';
--$10,055,691 class C-2 notes to 'CCsf' from 'Csf'.
KEY RATING DRIVERS
The upgrades are attributed to the increased credit enhancement (CE) available to the notes as a result of the transaction's deleveraging over the last year, as well as the notes' robust performance in Fitch's cash flow model analysis.
Since the last review in May 2013, approximately 6.6% of the underlying portfolio has been downgraded a weighted average of 3.2 notches and 28% has been upgraded a weighted average of 1.7 notches. Currently, approximately 35.5% of the portfolio has a Fitch-derived rating below investment grade and 25.3% has a rating in the 'CCCsf' rating category or lower, compared to 32.1% and 24.5% respectively, at previous review.
Following the full repayment of principal of the class A-1 notes in February 2014, the class A-2 notes became the senior-most class outstanding and since then have received approximately $4.6 million or 13.2% of their initial rated balance, in principal redemptions. While the cash flow modeling results vary across different interest rate and default timing scenarios, the breakeven rates are generally consistent with the rating levels that each class is being upgraded to today.
The Stable Outlook on the class A-2 and class B notes reflects Fitch's view that the transaction will continue to delever and that each class has sufficient CE to offset potential deterioration of the underlying collateral going forward. Fitch does not assign Outlooks to classes rated 'CCCsf' or below.
The class C-1 and C-2 notes (collectively, class C) are currently receiving their periodic interest payments. The CE level of the notes has increased since Fitch's last review and is currently above the expected losses from the distressed and defaulted collateral (rated 'CCsf' or lower) in the underlying portfolio. These notes, however, are not passing the 'CCCsf' rating stress in any of the cash flow modeled scenarios.
This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using Fitch's Structured Finance Portfolio Credit Model (SF PCM) to project future default levels for the underlying portfolio. These default levels were then compared to the transaction's breakeven levels generated by Fitch's cash flow model under various default timing and interest rate stress scenarios.
Class A-2 and B notes may experience future downgrades if significant portfolio deterioration is coupled with a sharp increase in interest rates during the life of the notes. Class C notes have limited rating sensitivity due to their current distressed rating levels.
Putnam 2001-1 is a cash flow structured finance collateralized debt obligation (SF CDO) that closed on Nov. 30, 2001. The portfolio is monitored by Putnam Advisory Company, LLC and is composed of 26.8% commercial and residential real estate investment trusts, 22.7% residential mortgage-backed securities, 15.9% commercial mortgage-backed securities, 16.4% corporate bonds , 9.5% SF CDOs, 6.9% corporate CDOs, and 1.8% commercial and consumer asset-backed securities from 1995 through 2006 vintage transactions.
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);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Fitch's Interest Rate Stress Assumptions for Structured Finance' (Jan. 23, 2014);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (June 12, 2013).
Applicable Criteria and Related Research:
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
Fitch's Interest Rate Stress Assumptions for Structured Finance
Global Rating Criteria for Structured Finance CDOs