OREANDA-NEWS. Fitch Ratings has upgraded Duncannon CRE CDO I plc's class D-1 notes and affirmed the rest as follows:

Class D-1 (XS0311204464): upgraded to 'CCsf' from 'Csf'

Class D-2 (XS0311204621): affirmed at 'Csf'

Class D-3 (XS0311204977): affirmed at 'Csf'

Class E-1 (XS0311206329): affirmed at 'Csf'

Class E-2 (XS0311206592): affirmed at 'Csf'

Duncannon CRE CDO I is a managed cash securitisation of commercial real estate assets, consisting primarily of CMBS, commercial mortgage B notes and mezzanine mortgage loans.

KEY RATING DRIVERS

The upgrade reflects an increase in credit enhancement for the class D-1 notes to 34% from -98%, following the full payment of the class C-2 notes' principal and the receipt of EUR30m of principal proceeds from several defaulted assets. Class D-1 is currently over-collateralised since the performing portfolio stands at EUR20m, compared with approximately EUR22m at end-2015.

Nevertheless, the class D-1 notes remain at risk of default. The remaining portfolio contains only six performing assets, indicating substantial obligor concentration risk. The top obligor represents 46.6% of the portfolio and the top three obligors account for 88.2%. The ratings, therefore, remain sensitive to the repayment by these obligors.

The credit quality of the portfolio has deteriorated over the last 12 months following the negative rating migration of the largest asset to 'CCCsf', taking the share of assets rated 'CCC' or lower of the portfolio to 59.6% from 54.8%.

The transaction is suffering from negative excess spread due to the quarterly payment on the hedging agreement and insufficient interest received on the performing portfolio. The cost of the hedging agreement, while following an amortising schedule and will decrease linearly from EUR260,000 to zero in September 2017, puts further pressure on the transaction.

The non-payment of interest on the class D-1 notes will trigger an event of default to the transaction unless enough principal proceeds are available to repay the interest due. This leaves the class D-1 notes reliant on principal proceeds to help cover quarterly interest shortfall and provide support in the event of further defaults.

The remaining classes are deeply under-collateralised, are deferring interest and rely solely on the recovery of defaulted assets. Thus, the ratings have been affirmed at 'Csf'.

RATING SENSITIVITIES

The notes are already at distressed rating levels and as such are unlikely to be affected by any further deterioration in the respective underlying assets.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transactions. There were no findings that affected the rating analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

-Loan-by-loan data provided by US Bank as at 29 July 2016

-Transaction reporting provided by US Bank as at 29 July 2016