Fitch Upgrades Six Classes of MACH ONE 2004-1, LLC
KEY RATING DRIVERS
Since the last rating action in October 2014, the class F and G notes have paid-in-full and the class H notes have received \\$8.9 million in paydowns. Over this period, none of the collateral has been downgraded and 36.5% has been upgraded. Currently, 64% of the portfolio has a Fitch derived rating below investment grade and 11.8% has a rating in the 'CCC' category and below, compared to 43.8% and 8.9%, respectively, at the last rating action. In addition, approximately 23% of the pool has a Fitch derived rating of 'AAA'. As of the Sept. 30, 2015 payment date, the class H through N notes are current on interest while the class O notes are experiencing interest shortfalls. Since issuance the transaction has experienced approximately \\$538 million in paydowns.
This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Additionally, a deterministic analysis was performed where the recovery estimate on the distressed collateral was modeled in accordance with the principal waterfall. An asset by asset analysis was then performed for the remaining assets to determine the collateral coverage for the remaining liabilities. Based on the analysis, classes H 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 and the expected recovery prospects upon default (with increasing credit enhancement due to paydown), the class N notes have been upgraded to '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 the last rating action).
The Stable Outlook on the class H and K through M notes and Positive Outlook on class J reflects Fitch's expectation that the transaction will continue to delever and anticipated recoveries from the distressed collateral.
In addition to the sensitivities discussed above, additional negative migration and defaults beyond those projected by SF PCM 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 36% of the collateral are senior positions in their respective underlying transactions.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has upgraded the following classes as indicated:
--\\$5,580,676 class H notes to 'AAAsf' from 'BBsf'; Outlook Stable;
--\\$17,689,000 class J notes to 'BBsf' from 'Bsf'; Outlook to Positive from Stable;
--\\$8,844,000 class K notes to 'BBsf' from 'Bsf'; Outlook Stable;
--\\$8,040,000 class L notes to 'Bsf' from 'CCCsf'; Outlook Stable;
--\\$8,844,000 class M notes to 'Bsf' from 'CCCsf'; Outlook Stable;
--\\$6,432,000 class N notes to 'CCCsf' from 'Csf'.
Fitch has affirmed the following class as indicated:
--\\$3,830,109 class O notes at 'Dsf'.
The class A-1 through G 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 six assets from four obligors from the 1998 and 1999 vintages.