NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed three classes of notes issued by NYLIM Stratford CDO 2001-1 Ltd. as follows.
--$15,000,328 class B notes at 'Bsf', Outlook Stable;
--$35,160,441 class C notes at 'Csf';
--$16,000,000 preference shares at 'Csf'.
KEY RATING DRIVERS
The affirmation of the class B notes is attributed to the stable performance of the portfolio and continued amortization of the notes offsetting the increasing portfolio concentration.
Since Fitch's last rating action in January 2015, the transaction has received approximately $2.7 million in principal payments, $1.3 million of which has been used to pay down the class B notes' balance, while approximately $1.4 million has been used to pay interest due on the class C notes. This leakage of principal to pay interest presents the risk of credit enhancement (CE) erosion. The class B notes are also exposed to concentration risks, as the higher rated assets in the portfolio have amortized at a faster rate than the lower rated assets and the portfolio has become increasingly concentrated, with only nine obligors remaining. The ongoing leakage of principal to pay the class C interest and concentration risks are offset by the credit quality of the remaining obligors, since the class B notes' balance is supported by collateral rated 'BBB' and higher. Given these risks, Fitch believes the appropriate rating for the notes is 'Bsf'.
The Stable Outlook reflects the notes' ability to withstand the leakage of principal to pay interest and rating migration given the coverage of the notes by collateral rated 'BBB' and higher.
The class C notes and preference shares CE levels are exceeded by the expected losses (EL) from the distressed collateral (rated 'CCsf' and lower). For these classes the probability of default was evaluated without factoring in potential losses from the performing assets. In the absence of mitigating factors, default for these notes at or prior to maturity appears inevitable.
Further negative migration and defaults beyond those projected in the Structured Finance Portfolio Credit Model as well as increasing concentration in assets of a weaker credit quality could lead to future downgrades. Continuing amortization accompanied by better than expected cash flows from distressed assets could lead to an upgrade.
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.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Global Surveillance Criteria for Structured Finance CDOs (pub. 13 Jul 2015)
Dodd-Frank Rating Information Disclosure Form