Fitch Upgrades Three Classes of MACH ONE 2004-1, LLC
KEY RATING DRIVERS
The upgrades are due to increased credit enhancement from principal paydown. Since the last rating action in October 2015, the class H notes have paid-in-full and the class J notes have received $8.6 million in paydowns. Over this period, none of the collateral has been downgraded or upgraded. Currently, 83.5% of the portfolio has a Fitch derived rating below investment grade and 14.9% has a rating in the 'CCC' category and below, compared to 64% and 11.8%, respectively, at the last rating action. In addition, approximately 6.6% of the pool has a Fitch derived rating of 'AAA'. As of the Aug. 30, 2016 payment date, the class J through O notes are current on interest. Since issuance the transaction has experienced approximately $552 million in paydowns.
This transaction was analyzed under the framework described in the report 'Global Surveillance Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. However, while the PCM output was used as a reference point, due to the concentration of the pool a look-through analysis of the underlying obligors was the final determining factor in the rating recommendations (see 'Global Surveillance Criteria for Structured Finance CDOs': Obligor Concentrations). The look-through analysis included a review of each asset to determine the collateral coverage for the remaining liabilities. Based on the analysis, classes J through M pass at or above the assigned ratings. The ratings reflect these results as well as the risk of adverse selection as the portfolio continues to amortize.
For the class N notes, Fitch analyzed the class' sensitivity to the default of the distressed assets ('CCC' and below). Given the probability of default of the underlying assets, the class N notes have been affirmed at 'CCCsf', indicating that default is possible. The class O notes have been affirmed at 'Dsf' due to incurred principal losses (approximately $2.6 million since issuance).
The Stable Outlook on the class J through M notes reflects Fitch's expectation that the transaction will continue to delever and that recoveries are likely from the distressed collateral.
In addition to the sensitivities discussed above, additional negative migration and defaults beyond those projected by SF PCM and the look-through analysis as well as increasing concentration of weaker credit quality assets could lead to downgrades for the more junior classes. The senior notes are expected to continue to amortize as 31% of the collateral are senior positions in their respective underlying transactions. Further upgrades may be limited due to concentration of the underlying collateral.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following classes and revised Rating Outlooks as indicated:
--$9,135,000 Class J Notes to 'Asf' from 'BBsf'; Outlook to Stable from Positive;
--$8,040,000 Class L Notes to 'BBsf' from 'Bsf'; Outlook Stable;
--$8,844,000 Class M Notes to 'BBsf' from 'Bsf'; Outlook Stable.
Fitch has affirmed the following classes:
--$8,844,000 Class K Notes at 'BBsf'; Outlook Stable;
--$6,432,000 Class N Notes at 'CCCsf';
--$3,809,334 Class O Notes at 'Dsf'.
The class A-1 through H notes have all paid in full. Classes P-1 through P-6 are NR. The rating on class X was previously withdrawn.
MACH ONE is a static Re-REMIC backed by CMBS B-pieces that closed July 28, 2004. The transaction is collateralized by five assets from four obligors from the 1998 and 1999 vintages.