NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded one and affirmed eight classes issued by ARCap 2003-1 Resecuritization, Inc. (ARCap 2003-1). A complete list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrades are due to continued deleveraging, increasing credit enhancement, positive portfolio migration, and better than expected recoveries from distressed collateral. Since the last rating action in March 2014, approximately 32.36% of the collateral has been upgraded and none has been downgraded. Over this period, the transaction has received $9.6 million in pay downs including approximately $7.2 million from distressed collateral. Since issuance, the transaction has experienced approximately $133.5 million in cumulative principal losses, an increase of $10.4 million since last review. Currently, 64.55% of the portfolio has a Fitch derived rating below investment grade, and 43.43% has a rating in the 'CCC' category and below, compared to 79.2% and 47.58%, respectively, at the last rating action.
This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Additionally, a deterministic analysis was performed where the recovery estimate on the distressed collateral was modeled in accordance with the principal waterfall. An asset by asset analysis was then performed for the remaining assets to determine the collateral coverage for the remaining liabilities.
Based on this analysis, the credit enhancements for the class B and C notes are consistent with the ratings assigned below.
For the class D through K notes, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, the class D notes have been affirmed at 'CCCsf', indicating that default is possible. Similarly, the class E through K notes have been affirmed at 'Csf', indicating that default is inevitable.
The Stable Outlook on the class B notes reflects Fitch's view that the transaction will continue to delever. The Positive Outlook on the class C notes reflects Fitch's view that the transaction will continue to delever and the ample credit enhancement to the class. However, further negative migration and defaults beyond those projected by SF PCM as well as increasing concentration in assets of a weaker credit quality could lead to downgrades. If recoveries are better than expected, there could be additional upgrades.
ARCAP 2003-1 is backed by 18 bonds from 6 commercial mortgage backed securities (CMBS) transactions and is considered a CMBS B-piece resecuritization (also referred to as first loss commercial real estate collateralized debt obligation [CRE CDO]/ReREMIC) as it includes the most junior bonds of CMBS transactions. The transaction closed Aug. 27, 2003.
Fitch upgrades the following class:
--$14,405,887 class B notes to 'BBBsf' from 'BBsf'; Outlook Stable.
Fitch affirms the following class and revises the Rating Outlook as follows:
--$20,500,000 class C notes at 'Bsf'; Outlook to Positive from Stable.
Fitch has affirmed the following classes:
--$15,400,000 class D notes at 'CCCsf';
--$36,100,000 class E notes at 'Csf';
--$13,000,000 class F notes at 'Csf';
--$45,000,000 class G notes at 'Csf';
--$9,000,000 class H notes at 'Csf';
--$28,000,000 class J notes at 'Csf';
--$24,000,000 class K notes at 'Csf'.
The class A notes have paid in full. Fitch does not rate the class L or class X notes.
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).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Structured Finance CDOs