Fitch Upgrades 3 Classes from Arroyo CDO I, Ltd.

CHICAGO--()--Fitch Ratings has upgraded three classes and assigned Rating Outlooks to two classes of notes issued by Arroyo I CDO, Ltd. (Arroyo I), as follows:

--$262,022 class B notes to 'AAAsf' from 'AAsf', Outlook Stable;

--$10,673,643 class C-1 notes to 'Bsf' from 'CCCsf', Outlook Stable assigned;

--$18,883,867 class C-2 notes to 'Bsf' from 'CCCsf', Outlook Stable assigned.

KEY RATING DRIVERS

The upgrades are due to continued deleveraging of the capital structure increasing credit enhancement (CE) levels available to the notes and the stable performance of the portfolio.

Since Fitch's last rating action in February 2014, the credit quality of the collateral has remained stable, with one asset comprising approximately 2.7% of the portfolio downgraded 1 notch and 8.7% upgraded a weighted average of 1.6 notches. Approximately 60% of the current portfolio has a Fitch-derived rating below investment grade and 36.1% has a rating in the 'CCCsf' rating category or lower, compared to 62.9% and 38.5%, respectively, at last review.

The class B notes have received approximately $3.9 million in principal repayment, since the last review, leaving 0.7% of the original balance outstanding. These notes are now fully supported by the cash in the principal collection account. Fitch expects these notes to be paid in full on the next semi-annual payment date in August 2015. As such, the notes are upgraded to 'AAA'. The Outlook reflects Fitch's expectation of a stable performance until the notes are fully paid down.

The class C notes are currently receiving their periodic interest payments. The CE level to these notes has increased since Fitch's last review to 43.5% from 39.8%. The notes are now able to pass the 'Bsf' rating stress in 8 of the 12 scenarios of Fitch's cash flow analysis. The upgrade of the class C notes is in line with the breakeven levels from the cash flow model.

The Stable Outlook reflects the available cushion in the modeling results to protect the notes against potential deterioration in the credit quality of the underlying portfolio.

RATING SENSITIVITIES

The class B notes have limited rating sensitivity given their CE level and the likelihood for the class to pay in full on the next payment period.

The class C notes have downward rating sensitivity with respect to further negative migration and defaults beyond those projected in the SF PCM as well as increasing concentration in assets of a weaker credit quality. Continuing amortization accompanied by better than expected cash flows from distressed assets could lead to an upgrade.

This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Structured Finance Portfolio Credit Model (SF PCM) for projecting future default levels for the underlying portfolio. These default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under various default timing and interest rate stress scenarios.

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'Global Rating Criteria for Structured Finance CDOs' (July 16, 2014).

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).

--'Fitch's Interest Rate Stress Assumptions for Structured Finance' (Jan. 23, 2014)

Applicable Criteria and Related Research:

Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732175

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=943496

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Contacts

Fitch Ratings
Primary Surveillance Analyst
Emmett O'Brien
Analyst
+1-212-908-1648
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 1004
or
Committee Chairperson
Alina Pak, CFA
Senior Director
+1-312-368-3184
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Surveillance Analyst
Emmett O'Brien
Analyst
+1-212-908-1648
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 1004
or
Committee Chairperson
Alina Pak, CFA
Senior Director
+1-312-368-3184
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com