Fitch Affirms Mercury CDO 2004-1, Ltd.
--$34,676,304 Class A-1NV notes at 'CCCsf';
--$11,560 Class A-1VA notes at 'CCCsf';
--$38,156,652 Class A-1VB notes at 'CCCsf';
--$25,000,000 Class A-2A notes at 'Csf';
--$31,050,000 Class A-2B notes at 'Csf';
--$38,880,000 Class B notes at 'Csf';
--$17,227,486 Class C notes at 'Csf'.
Fitch does not rate the preference shares.
KEY RATING DRIVERS
The A-1NV, A-1VA, and A-1VB classes have been affirmed at 'CCCsf'. The classes' current credit enhancement (CE) levels exceed the losses projected at the 'CCCsf' rating stress under Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis, but fall below the losses projected at the 'Bsf' rating stress.
The A-2A, A-2B, B, and C classes have been affirmed at 'Csf'. These classes have credit enhancement (CE) levels that are exceeded by the expected losses 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 continues to appear inevitable.
Negative migration, defaults beyond those projected, an extension of the weighted average life for the underlying assets, and lower than expected recoveries could lead to downgrades for classes analysed 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. Continuing amortization accompanied by better than expected cash flows from distressed assets could lead to an upgrade.
This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Surveillance Criteria for Structured Finance CDOs'. The transaction was not analysed through the cash flow model framework, as the effect of structural features and excess spread available to amortize the notes were determined to be minimal.
Mercury 2004-1 is a collateralized debt obligation (CDO) that closed Nov. 3, 2004 and is managed by Dock Street Capital Management, LLC. Mercury exited its substitution period in March 2007 and currently has a static portfolio composed of 84% residential mortgage-backed securities (RMBS) and 16% CDOs.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third party due diligence was reviewed in relation to this rating action.