NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded two and affirmed six classes issued by ARCap 2003-1 Resecuritization, Inc. (ARCap 2003-1). A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The upgrades are due to continued deleveraging, increasing credit enhancement, positive portfolio migration, and better than expected recoveries from distressed collateral. Since the last rating action in March 2015, approximately 32.8% of the collateral has been upgraded and none has been downgraded. Over this period, the transaction has received $18.6 million in paydowns. Since issuance, the transaction has experienced $261.9 million in cumulative principal losses, $0.8 million of which was incurred since last review. Currently, 63.4% of the portfolio has a Fitch-derived rating below investment grade, and 33.7% has a rating in the 'CCC' category and below, compared to 64.5% and 43.4%, respectively, at the last rating action.
This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Additionally, a deterministic analysis was performed where the recovery estimate on the distressed collateral was modeled in accordance with the principal waterfall. An asset-by-asset analysis was then performed for the remaining assets to determine the collateral coverage for the remaining liabilities.
Based on this analysis, the credit enhancement for the class C and D notes is consistent with the rating actions below.
For the class E through K notes, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, the class E through K notes have been affirmed at 'Csf', indicating that default is inevitable.
The Stable Outlook on the class C and D notes reflects Fitch's view that the transaction will continue to delever. However, further negative migration and defaults beyond those projected by SF PCM as well as increasing concentration in assets of a weaker credit quality could lead to downgrades. If recoveries are better than expected, there could be additional upgrades.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded and revised or assigned Rating Outlooks to the following ratings:
--$16,345,629 class C notes to 'BBBsf' from 'Bsf; Outlook to Stable from Positive;
--$15,400,000 class D notes to 'Bsf' from 'CCCsf'; Outlook Stable.
Fitch has affirmed the following ratings:
--$36,100,000 class E notes at 'Csf';
--$13,000,000 class F notes at 'Csf';
--$45,000,000 class G notes at 'Csf';
--$9,000,000 class H notes at 'Csf';
--$28,000,000 class J notes at 'Csf';
--$24,000,000 class K notes at 'Csf'.
The class A and B notes have paid in full. Fitch does not rate the class L or class X notes.
Additional information is available at www.fitchratings.com.
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