Fitch Takes Various Rating Actions on Four SF CDOs From 2003-2005 Vintages
--Affirmed 17 tranches;
--Downgraded one tranche.
KEY RATING DRIVERS
Thirteen 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.
One class has been affirmed at 'CCCsf'. The class' current CE exceeds the losses projected at the 'CCCsf' rating stress under Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis, but falls below the losses projected at the 'Bsf' rating stress.
In Huntington CDO, Ltd, the A-1A and A-1B notes have experienced significant deleveraging which has resulted in increased CE available to the notes. Based on 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. Fitch performed an additional sensitivity scenario for this transaction in which the assets weighted average lives were extended to half of their term to their legal maturities. The results of the sensitivity analysis are commensurate with the A-1 notes current ratings.
In Lakeside CDO I, Ltd. and Lakeside CDO II, Ltd., the comparison of the CE levels and SF PCM stresses indicate higher passing ratings for the class A-1 notes than the current ratings. However, in both deals principal proceeds are being used to pay the periodic interest on the class A-2 notes and the amount of principal for interest (P for I) as a percentage of the remaining collateral has been increasing. The results from Fitch's Cash Flow Model (CFM) analysis indicate the ability of the notes to receive timely interest to be commensurate with a 'CCCsf' rating for the A-1 notes in Lakeside CDO I, Ltd., and a 'BBsf' rating for the A-1 notes in Lakeside CDO II, Ltd.
Negative migration, defaults beyond those projected, 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.
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 individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on Four SF CDOs from 2003-2005 Vintages', released and available at 'www. fitchratings. com' by performing a title search or by using the link.
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.