Fitch Takes Various Rating Actions on 13 SF CDOs From 2002-2006 Vintages

NEW YORK--()--Fitch Ratings has taken the following rating actions on tranches from 13 structured finance collateralized debt obligations (SF CDOs) with exposure to various structured finance assets.

--Affirmed 38 tranches;

--Upgraded nine tranches;

--Downgraded and withdrawn four tranches;

--Revised four Rating Outlooks to Positive.

KEY RATING DRIVERS

Thirty-two classes rated 'Csf' have credit enhancement (CE) levels that are exceeded by the expected losses (EL) from the distressed collateral (rated 'CCsf' and lower) of each portfolio. For these classes, the probability of default was evaluated without factoring potential losses from the performing assets. In the absence of mitigating factors, default for these notes at or prior to maturity appears inevitable.

The downgrade to 'Dsf' from 'Csf' and withdrawal of the ratings of the class B-1 notes of Birch Real Estate CDO I, Ltd. is attributable to the Event of Default that was triggered by the failure to pay interest to the class B-1, the most senior outstanding class of notes. All assets in the portfolio were sold at the direction of the holders of preferred shares in April 2015, while the remaining class B-1 note balance is $5million. Fitch is withdrawing the rating of the class B-1 notes of Birch Real Estate CDO I, Ltd. as it is no longer considered by Fitch to be relevant to the agency's coverage because there are no assets remaining in the portfolio.

The downgrade to 'Dsf' from 'CCCsf' of the class B notes and the downgrade to 'Dsf' from 'Csf' of the C-1 and C-2 notes of Coast Investment Grade 2002-1, Ltd./Corp. is attributable to the notes failure to be paid their principal in full. Fitch is withdrawing the ratings of the class B, C-1 and C-2 notes of Coast Investment Grade 2002-1, Ltd./Corp. as the notes were surrendered and cancelled.

The upgrade to the class A-2 notes of Straits Global ABS CDO I, Ltd. to 'Csf' from 'Dsf' follows the payoff of the class A-1 since last review. Class A-2, now the most senior tranche, has resumed receiving its interest and has fully recovered its past default interest that had accumulated as a result of the Event of Default triggered acceleration in 2009. Fitch expects the A-2 notes to continue to receive their interest on a timely basis. The non-deferrable class B-1 and B-2 notes are affirmed at 'Dsf' due to the continuing interest payment shortfalls since acceleration.

The upgrades are attributed to significant deleveraging of each transaction's capital structure which has resulted in increased credit enhancement available to the notes. According to the Structured Finance Portfolio Credit Model (SF PCM) analysis, these tranches are now able to withstand losses at a higher rating stress compared to Fitch's previous review.

In two transactions, C-BASS CBO VIII, Ltd./Corp. and Porter Square CDO I, Ltd./Inc., the comparison of the CE levels and SF PCM stresses indicate higher passing ratings than those resulting from the rating action. However, Fitch analysis also factored the concentrated nature of the remaining performing portfolios.

RATING SENSITIVITIES

Negative migration, defaults beyond those projected, and lower than expected recoveries could lead to downgrades for classes analyzed under the SF PCM. Classes already rated 'Csf' have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for non-deferrable classes to be downgraded to 'Dsf' should they experience any interest payment shortfalls.

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Surveillance Criteria for Structured Finance CDOs'. None of the transactions have been analyzed under a cash flow model framework, as the effect of structural features and excess spread available to amortize the notes were determined to be minimal. The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 13 SF CDOs from 2002-2006 Vintages', released and available at 'www.fitchratings.com' by performing a title search or by using the link.

DUE DILIGENCE USAGE

No third party due diligence was reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Sources of Information:

The sources of information used to assess these ratings were periodic trustee reports and the public domain.

Fitch Takes Various Rating Actions on 13 SF CDOs from 2002-2006 Vintages

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870250

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

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

Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Global Surveillance Criteria for Structured Finance CDOs (pub. 13 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867800

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989867

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989867

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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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