CHICAGO--(BUSINESS WIRE)--Fitch Ratings downgrades and affirms the ratings of the following CNL Commercial Mortgage Loan Trust 2001-2 loan backed adjustable rate notes:
--Class A downgraded to 'Asf' from 'AAsf'; Outlook Stable;
--Class B affirmed at 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
The downgrade of the class A notes reflects a higher loss expectation on the pool, given the recent increase in delinquencies. However, this increase has been partially offset by the stable credit enhancement for both classes of notes. While CE has grown, the current characteristics of the transaction are not consistent with high investment grade ratings. As such, class A has been downgraded to 'Asf' and the class B notes are affirmed at 'BBBsf'. Both classes have Stable Outlooks as CE is expected to continue to provide adequate protection to the notes.
In reviewing the transactions, Fitch took into account analytical considerations outlined in Fitch's 'Global Structured Finance Rating Criteria', issued Aug. 4, 2014, including asset quality, CE, financial structure, legal structure, and originator and servicer quality.
Fitch's analysis incorporated a review of collateral characteristics, in particular, focusing on delinquent and defaulted loans within the pool. All loans over 30 days delinquent were deemed defaulted loans. The defaulted loans were applied loss and recovery expectations based on collateral type and historical recovery performance to establish an expected net loss assumption for the transaction. Fitch stressed the cashflow generated by the underlying assets by applying its expected net loss assumption. Furthermore, a loss multiplier was applied to Fitch's analysis to determine the level of expected cumulative losses the structure can withstand at a given rating level. The loss multiplier scale utilized is consistent with Fitch's 'Criteria for Rating U.S. Equipment Lease and Loan ABS', dated Dec 19, 2013
Additionally, Fitch's analysis focused on concentration risks within the pool, by evaluating the impact of the default of the largest performing obligors. The obligor concentration analysis is consistent with the previously mentioned equipment criteria. The analysis compares expected loss coverage relative to the default of a certain number of the largest obligors. The required net obligor coverage varies by rating category. The required number of obligors covered ranges from 20 at 'AAA' to five at 'B'. Fitch applied loss and recovery expectations based on collateral type and historical recovery performance to the largest performing obligors commensurate with the individual rating category. The expected loss assumption was then compared to the modeled loss coverage available to the outstanding notes given Fitch's expected losses on the currently delinquent loans. Fitch also applied the 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' dated May 28, 2014 in determining the ratings.
While the stresses loss approach was the primary driver, its results were compared to the obligor concentration approach and qualitative factors such the results of these approaches compared to prior reviews, recent performance, and available CE. The rating actions taken were ultimately the result of a combination of these factors. Fitch will continue to closely monitor this transaction and may take additional rating action in the event of changes in performance and CE measures
Loss severity greater than assumed for the pool and increases in delinquencies may result in further downgrades of the notes. Additionally, while obligor concentrations remain limited now, they may pose risks to the transaction later in the life of the transaction. However, if CE continues growing for the classes and loss severity is similar to Fitch's assumptions, the classes will likely have Stable ratings over the near term.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (May 28, 2014);
--'Criteria for Rating U.S. Equipment Lease and Loan ABS' (Dec. 19, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
Criteria for Rating U.S. Equipment Lease and Loan ABS