Fitch Takes Various Rating Actions on 15 SF CDOs from 1999-2004 Vintages
--Affirmed 62 tranches;
--Upgraded four tranches;
--Revised two Rating Outlooks to Positive.
KEY RATING DRIVERS
Fifty-three 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 continues to appear inevitable.
In one transaction, Streeterville ABS CDO I, Ltd., the class A-1 notes' current CE is nearly on par with the 'CCC' SF PCM RLR; however, the notes are being affirmed at their current 'CCsf' rating to account for certain structural risks. The transactions principal waterfall allows for principal to be diverted to pay class A-2, B-1, and B-2 interest if not paid through the interest waterfall. This potential future diversion of principal proceeds could lead to an erosion of the A-1 notes' CE. In addition, a currently failing overcollateralization test is cured by paying down the principal of the subordinate class C-1 and C-2 notes rather than the most senior class, A-1. This is expected to continue in a foreseeable future.
Three classes, affirmed at 'Dsf', are non-deferrable classes which continue to experience interest payment shortfalls.
The upgrades are attributed to significant deleveraging of each transaction's capital structure which has resulted in increased CE available to the notes. According to 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.
The class B notes of C-BASS IX Ltd. are now fully supported by cash in the principal collection account and are expected to be paid in full on the next payment date in October 2015.
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'. None of the transactions have been analysed under a cash flow model framework, as the effect of structural features and excess spread available to amortize the notes were determined to be minimal. The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 15 SF CDOs from 1999-2004 Vintages', released and available at 'www.fitchratings.com' by performing a title search or by using the link.
DUE DILIGENCE USAGE
No third party due diligence was reviewed in relation to this rating action.