CHICAGO--(BUSINESS WIRE)--Fitch Ratings takes the following rating actions on GE Business Loan Trusts as listed below:
--Class A affirmed at 'Asf'; Outlook to Stable from Negative;
--Class B affirmed at 'BBBsf'; Outlook to Stable from Negative;
--Class C affirmed at 'BBsf'; Outlook to Stable from Negative;
--Class D affirmed at 'Bsf'; Outlook to Stable from Negative;
--Class A-3 downgraded to 'BBsf' from 'Asf'; Outlook Negative;
--Class B downgraded to 'B+sf' from 'BBBsf'; Outlook Negative.
--Class C downgraded to 'Bsf' from 'BBsf'; Outlook Negative.
--Class D downgraded to 'CCCsf' from 'Bsf'; RE 100%
--Class A affirmed at 'Asf'; Outlook Negative;
--Class B affirmed at 'BBBsf'; Outlook Negative.
--Class C affirmed at 'BBsf'; Outlook Negative.
--Class D affirmed at 'Bsf'; Outlook Negative
--Class A downgraded to 'BBBsf' from 'Asf'; Outlook Negative;
--Class B downgraded to 'BBsf' from 'BBBsf'; Outlook Negative;
--Class C downgraded to 'B+sf' from 'BBsf'; Outlook Negative;
--Class D downgraded to 'B-sf' from 'Bsf'; Outlook Negative.
--Class A affirmed at 'Asf'; Outlook Negative;
--Class B affirmed at 'BBBsf'; Outlook Negative;
--Class C affirmed at 'BBsf'; Outlook Negative;
--Class D affirmed at 'Bsf'; Outlook Negative.
KEY RATING DRIVERS
The affirmations of the notes in 2004-2, 2005-2, and 2006-2 reflect the stable performance across the transactions and improved Credit Enhancement (CE) levels. While obligor concentrations remain a concern within these transactions, the concentrations haven't shifted materially since last review and remain consistent with those expected for their respective ratings.
The downgrades in 2005-1 reflect recent defaults which have substantially reduced the spread account exposing the notes to the current delinquencies. The expected charge-off of two large loans will have a material impact on CE levels. After charge-off, available CE will not be able to support the loss coverage and obligor coverage levels. While recoveries on these loans and previously defaulted loans would provide some additional support, the timing and size of these recoveries is uncertain. Class D recovery estimate is 100%.
The downgrades of 2006-1 reflect the growing obligor concentrations of the classes. The downgrades for 2006-1 reflect growing obligor concentrations. While the transaction performance has remained stable, obligor concentrations has increased and have outpace CE growth over the last year.
The Negative Outlooks, (excluding 2004-2) designation on the trusts reflects Fitch's concern with growing obligor concentrations as the transactions continue to amortize. As the number of obligors decline, the risk exposure increases for a single obligor default within the pools further limiting the outstanding credit support's ability to sustain the default of a large obligor. Given current amortization and current concentrations, Fitch believes the trusts to have increasing risk exposure to additional obligor defaults. As such, Fitch will continue to diligently monitor these transactions and may take additional rating action.
In reviewing the transactions, Fitch took into account analytical considerations outlined in Fitch's 'Global Structured Finance Rating Criteria', issued July 2015, including asset quality, credit enhancement, financial structure, legal structure, and originator and servicer quality.
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 Fitch's 'Criteria for Rating US Equipment Lease and Loan ABS', dated Dec 2015. 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 2014 in determining the ratings.
Additionally, Fitch's analysis incorporated a review of collateral characteristics, in particular, focusing on delinquent and defaulted loans within the pool. All loans over 60 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, Fitch applied a loss multiplier to evaluate break-even cash flow runs 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 that of other commercial ABS transactions.
While the obligor concentration approach was the primary driver, its results were compared to the stresses loss approach and qualitative factors such the results of these approaches compared to prior reviews, recent performance, and available credit enhancement. The rating actions taken were ultimately the result of a combination of these factors. Fitch will continue to closely monitor these transactions and may take additional rating action in the event of changes in performance and credit enhancement measures.
Unanticipated increases in the frequency of defaults and loss severity could produce loss levels higher than the current projected losses and impact available loss coverage and obligor coverage. Lower loss coverage could impact ratings and rating outlooks, depending on the extent of the decline in coverage. Should performance materially deteriorate, the decline in loss coverage could negatively impact current ratings.
DUE DILIGENCE USAGE
No third party due diligence was received in connection to this review.
Additional information is available at 'www.fitchratings.com'.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)
Criteria for Rating U.S. Equipment Lease and Loan ABS (pub. 03 Dec 2015)
Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form