Fitch Takes Various Rating Actions on 25 SF CDOs from 2001-2006 Vintages

NEW YORK--()--Fitch Ratings has upgraded one class and affirmed 143 classes of notes from 25 structured finance CDOs with exposure to various structured finance assets that were securitized between 2001 and 2006.

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 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 124 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 15 classes of notes at 'Dsf' is due to the expectation that these non-deferrable classes will continue experiencing interest payment shortfalls.

The class A-2 notes issued by Putnam Structured Product CDO 2001-1, Ltd./Inc. (Putnam) have amortized by approximately $17.5 million. Although the credit enhancement (CE) available to this class indicates a cushion over the Structured Finance Portfolio Credit Model (SF PCM) 'AAAsf' RLR, Fitch believes that the outstanding note balance coupled with the decreasing amount of principal proceeds and the risk for potential rating migration are in line with a 'AAsf' rating.

The CE of class B notes issued by Putnam have also benefited from the amortization of the senior notes. The CE available to these notes is also indicative of higher ratings according to the SF PCM analysis. However, given that the class B notes remain subordinate to the class A-2 notes and given the potential for the portfolio to become more concentrated, Fitch believes the appropriate rating for these notes is 'BBBsf'.

The Stable Outlook on the Putnam class A-2 and class B notes reflects Fitch's view that the transaction will continue to deleverage and that each class has sufficient CE to offset potential deterioration of the underlying collateral going forward. Fitch does not assign Outlooks to classes rated 'CCCsf' or below.

The class C-1 and C-2 notes issued by Putnam are currently receiving their interest payments. The CE level of the notes has increased since last review and remains at a level greater than the expected losses from the distressed and defaulted collateral (rated 'CCsf or lower) in the underlying portfolio. These notes, however, are not passing the 'CCCsf' SF PCM RLR.

The certificates issued by Blue Heron Funding II, Ltd. are affirmed at 'AAAsf'/Outlook Stable. The principal of the certificates is protected by a zero coupon bond, maturing in April 2030. According to the documents of each transaction, no party other than the certificate holders have claims against the protection assets which were issued by the Resolution Funding Corporation (REFCO), a U.S. government sponsored agency.

RATING SENSITIVITIES

Class A-2 and B notes from Putnam may experience future downgrades if significant portfolio deterioration is coupled with a sharp increase in interest rates. The class C notes from Putnam have limited rating sensitivity due to their distressed rating levels.

In regards to the remainder of deals included in the review, the non-deferrable classes that have continued to receive timely interest can be downgraded to 'Dsf' should they experience interest payment shortfalls. Overall, 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 in the context of the current ratings.

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 25 SF CDOs from 2001-2006 Vintages', dated April 15, 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'.

The information used to assess these ratings is from the trustees reports.

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (March 31, 2015);

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

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

Applicable Criteria and Related Research: Fitch Takes Various Rating Actions on 25 SF CDOs from 2001-2006 Vintages

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864862

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Global Rating Criteria for Structured Finance CDOs

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

Counterparty Criteria for Structured Finance and Covered Bonds

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983027

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Surveillance Analyst:
Emmett O'Brien, +1-212-908-0648
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Alina Pak, CFA, +1-312-368-3184
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Surveillance Analyst:
Emmett O'Brien, +1-212-908-0648
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Alina Pak, CFA, +1-312-368-3184
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com