NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 206 classes of notes from 43 structured finance collateralized debt obligations (SF CDOs) with exposure to various structured finance assets.
Fitch is considering withdrawing the ratings on some of the SF CDO transactions addressed in this rating action commentary, due to the lack of their relevancy to the agency's coverage combined with commercial reasons. Notes issued by all of these transactions are severely under collateralized. As reflected in the notes' current ratings, at Csf or Dsf, default at legal maturity or earlier is inevitable, or has already occurred.
While Fitch believes that investors are no longer interested in the agency's coverage of these transactions, the agency will allow investors the opportunity to request the continuing coverage. Investors are encouraged to contact the analysts indicated at the bottom of this rating action commentary within 30 calendar days since the publication date. At the end of that period, Fitch will evaluate any responses and will make a final determination with respect to the withdrawal.
KEY RATING DRIVERS
The affirmation of 139 classes at 'Csf' reflects the degree of each note's undercollateralization. Fitch's analysis of these classes indicates that even if a full par recovery on the distressed and defaulted collateral (rated 'CCsf' and lower) of each respective portfolio was realized, it is still unlikely for these notes to receive the full repayment of principal and accrued interest by their stated maturity dates. As such, the agency believes that the probability of default can be evaluated without factoring in potential further losses from the currently performing portion of the portfolios. In the absence of mitigating factors, default for these notes at or prior to maturity appears inevitable.
The affirmation of 66 classes of notes at 'Dsf' is due to the expectation that these non-deferrable classes will continue experiencing interest payment shortfalls.
The affirmation of the Class B-1 and B-2 notes issued by Pacific Shores CDO, Ltd./Inc. at 'CCCsf' is attributed to the deleveraging consistent with Fitch's expectations and ability to withstand losses at the 'CCCsf' rating stress according to Fitch's Structured Finance Portfolio Credit Model analysis.
The certificates issued by Blue Heron Funding V, Ltd. and Blue Heron Funding VII, Ltd. are affirmed at 'AAAsf/Outlook Stable'. The principal of the certificates is protected by zero coupon bonds, maturing in January 2029 and April 2030, respectively. According to the documents of each transaction, no party other than the certificate holders have claim against the protection assets which were issued by the Resolution Funding Corporation (REFCO), a U.S. government sponsored agency.
Non-deferrable classes that have continued to receive timely interest can be downgraded to 'Dsf' should they experience interest payment shortfalls. In general, transactions included in this review have limited sensitivity to further negative migration given the highly distressed rating levels of the outstanding notes.
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.
Instead, Fitch compared the CE level of each class to the expected losses from the distressed assets in the portfolio. For transactions where the CE level of the senior class of notes exceeded the expected losses from the distressed assets, Fitch utilized SF PCM to project potential losses from the entire portfolio, that were then compared to the CE levels of the notes.
The individual rating actions for each rated CDO are detailed in the report 'Fitch Takes Various Rating Actions on 44 SF CDOs from 2000-2007 Vintages', dated Feb. 10, 2015. It can be found on Fitch's website at 'www.fitchratings.com' by performing a title search or by using the link below. For further information and transaction research, please refer to 'www.fitchratings.com'.
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' (July 16, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria - Effective from 20 May 2014 to 4 August 2014
Global Rating Criteria for Structured Finance CDOs