Fitch Takes Various Actions on Five U. S. REIT TruPS CDOs
KEY RATING DRIVERS
The upgrade of the class A-1 notes in Kodiak CDO I, Ltd./Inc. (Kodiak I) and outlook revision in Kodiak CDO II, Ltd./Inc. (Kodiak II) were due to deleveraging in both transactions. Both transactions also benefit from the expiration of out-of-the money interest rate hedges that has already occurred in Kodiak I and will occur after the February 2017 payment date in Kodiak II.
For Kodiak I and Kodiak II, Fitch performed two additional sensitivity scenarios. In the first, the SF CDO and CMBS assets' weighted average lives were extended to half of their term to their legal maturities. In the second, the ratings of obligors which made up greater than 5% of the performing portfolio were lowered by one rating category to account for potential performance volatility in concentrated portfolios. The results of the sensitivity analysis support the upgrade in Kodiak I and Positive Outlook in Kodiak II.
While the three Attentus CDO transactions have delevered, the deleveraging was offset by collateral writedowns, and therefore an upgrade to the notes of these transactions is not warranted. The individual rating actions are detailed in the rating action report 'Fitch Takes Various Actions on Five U. S. REIT TruPS CDOs'.
Significant paydowns combined with stable or improving credit migration, can lead to limited upgrades for senior notes in some transactions. Conversely, negative migration, defaults beyond those projected and collateral redemptions from stronger credits causing adverse selection in underlying portfolios, will lead to downgrades.
This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Surveillance Criteria for Structured Finance CDOs'. None of the transactions have been analysed under a cash flow model framework, as the model implied ratings were not equal or higher than the plus level of the category above and the level of excess spread was able to be estimated within the context of the notes' expected remaining life.
DUE DILIGENCE USAGE
No third party due diligence was reviewed in relation to this rating action.