NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded six classes and affirmed 98 classes of notes from 22 structured finance CDOs with exposure to various structured finance assets that were securitized between 2001 and 2005.
KEY RATING DRIVERS
The upgrades to the class A-1 notes of Glacier Funding CDO II and class B notes of Pasadena CDO, Ltd are attributed to significant deleveraging of the capital structure since the transaction's last review. The notes have received $35 million and $30.4 million, respectively, over the last year. The notes have benefited from increased credit enhancement (CE) levels and are now able to withstand losses consistent with a 'Asf' and 'BBsf' rating, respectively, according to Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis.
Similarly, the upgrades to the class I-MM from Northlake CDO I, Ltd./Corp. and class A-2 in Solstice ABS CDO III, Ltd are the result of the continued deleveraging of the capital structure. The class I-MM and A-2 notes have received $10.7 and $16.7 million, respectively, and are able to withstand losses at the 'CCCsf' rating stress category.
Class A-2 from Pacific Bay CDO, Ltd./Inc. and class B from MKP CBO III were upgraded to 'CCCsf' and 'Csf', respectively, as they have repaid their previously defaulted interest and are now current on their interest and have begun to pay down.
Class A-1 from RFC CDO II Ltd. was affirmed at 'Bsf'. The increase in the CE to this class as a result of principal amortization offset the deterioration in the underlying portfolio.
For transactions in which losses projected at the 'CCCsf' rating stress exceeded CE levels of the most senior class of notes, the CE levels were compared to the expected losses (EL) from distressed assets (assets rated 'CCsf' and lower). For classes of notes whose CE levels were higher than EL, the ratings were affirmed at 'CCsf'.
For 83 classes of notes, the EL already exceeded the notes' CE levels or the notes were undercollateralized. For these classes, in Fitch opinion, default is inevitable and they were affirmed at 'Csf'. In addition, class A-1MM of Commodore CDO II, Ltd. was affirmed at 'Csf' due to the principal proceeds being used to pay interest to the class, despite its CE levels exceeding the EL.
Ten classes, affirmed at 'Dsf', are non-deferrable classes that continue experiencing interest payment shortfalls.
Negative migration and defaults beyond those projected could lead to downgrades for the six transactions analyzed under the SF PCM. The remaining 16 transactions have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for non-deferrable classes to be downgraded to 'Dsf' should they experience any interest payment shortfalls.
This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Rating Criteria for Structured Finance CDOs'. None of the transactions have been analyzed within a cash flow model framework, as the effect of structural features and excess spread available to amortize the notes were determined to be minimal. The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 22 SF CDOs from 2001-2005 Vintages', released and available at 'www.fitchratings.com' by performing a title search or by using the above link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'Global Rating Criteria for Structured Finance CDOs' (Sept. 12, 2013);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (May 28, 2014).
Applicable Criteria and Related Research: Fitch Takes Various Rating Actions on 22 SF CDOs from 2001-2005 Vintages