Fitch Places 19 Structured CDOs on Watch Negative Due to Subprime Exposure; CDO Methodology Revised
July 12, 2007 04:12 PM Eastern Daylight Time
home.businesswire.com
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed 33 classes from 19 structured finance (SF) CDOs on Rating Watch Negative (RWN) for potential downgrades. Fitch also maintains RWN on eight classes of four SF CDOs which were placed on RWN June 22, 2007. These actions are a direct result of collateral deterioration, specifically subprime RMBS, whereby significant portions of the portfolio have been downgraded, placed on RWN or 'Under Analysis' by either Fitch, Moody's or S&P in recent weeks. Fitch rates approximately $54.4 billion notes from 160 U.S. mezzanine SF CDOs and approximately $39.6 billion notes from 41 U.S. high-grade SF CDOs. Today's actions, combined with the four CDOs place on RWN on June 22, 2007, affect approximately $803 million.
Fitch's actions follow a review of SF CDO exposure to assets that have been downgraded or are currently RWN by Fitch, Moody's or S&P. All of the affected SF CDOs have a significant portion of their portfolio that have either been downgraded, placed on RWN or 'Under Analysis' since Fitch's last credit committee. Additionally, Fitch factored in exposure to 2006 vintage closed-end second lien (CES) RMBS exposure, regardless of any rating activity, based on the severe underperformance of this sub-sector. For more information on the performance of the 2006 vintage subprime CES RMBS see Fitch's press release, 'Second-Lien RMBS Exposure in CDOs Marginal But May Increase' dated May 22, 2007, available on the Derivative Fitch web site at www.derivativefitch.com.
Other significant factors considered in the rating watch process included the severity of any downgraded assets, expected impact on CDO structural features and the degree of additional stress the tranches should be able to withstand before the existing ratings would be at risk for downgrade. Fitch expects the magnitude of the prospective rating actions to range from two to five notches on most of the notes placed on RWN over the next several weeks after conducting full analysis of each transaction. Fitch's analysis will follow the existing surveillance process which includes full cash flow modeling and discussion with Collateral Managers to understand their management plans. Of note, however, to the degree a significant portion of CDO collateral remains on RWN or is considered at increased risk in Fitch's view, Fitch will maintain some classes of SF CDOs on RWN. Furthermore, should collateral deterioration continue, additional SF CDOs will be affected.
Fitch also revised its CDO rating methodology to reflect the increased default risk evidenced in U.S. subprime RMBS bonds issued since 2005. The higher delinquencies and losses being realized in the late 2005 and 2006 vintage subprime RMBS is a clear departure from the historical performance of earlier vintages for this asset class. The revised rating methodology modifies Fitch's CDO modeling assumptions by increasing the default probability by 25% for U.S. subprime RMBS bonds issued since 2005. Fitch's primary CDO analytical model, the Default VECTOR model, provides users sufficient flexibility to incorporate this revision by adding a default probability multiplier. A new version of VECTOR will be made available to the public in the near future that directly incorporates these revisions. This revised rating methodology will apply to all SF CDOs as of July 13, 2007. Fitch recognizes the performance of recent vintage subprime RMBS transactions are experiencing extreme volatility and may further adjust these assumptions as appropriate in the future.
Additionally, Fitch rates 53 European and Asian SF CDOs which have combined exposure to $22 billion of U.S. subprime RMBS. However, these transactions have not seen significant deterioration in the underlying portfolios to date. Only 11 of these European CDOs have limited exposure to U.S. subprime securities which experienced downgrades or have been placed on RWN. These CDOs have sufficient credit enhancement to maintain the current ratings.
Fitch will host a teleconference with members from Fitch's U.S. RMBS and Derivative Fitch teams to discuss today's announcements on Wednesday, July 18th at 11am. Call information will be announced in a separate news release.
Fitch has placed the following U.S. CDO notes on Rating Watch Negative:
Bristol CDO I, Ltd.
--$30,000,000 class B notes 'B/DR2'.
Charles River CDO I, Ltd.
--$3,000,000 class B-F notes 'BBB';
--$18,000,000 class B-V notes 'BBB';
--$4,800,000 class C notes 'BB'.
Commodore CDO II Ltd.
--$9,520,283 class C notes 'BBB'.
Dunloe 2005-1, Ltd.
--$20,000,000 class C notes 'A-'.
E*TRADE ABS CDO I, Ltd./LLC
--$25,000,000 class B notes 'BBB';
--$9,321,800 class C-1 notes 'CC'/'DR3';
--$3,384,239 class C-2 notes 'CC'/'DR3'.
Glacier Funding CDO II, Ltd.
--$18,614,769 class C notes 'BBB';
--$4,000,000 class D notes 'BB'.
Glacier Funding CDO III, Ltd.
--$2,781,311 class D notes 'BB+'.
GSC ABS CDO 2006-2m, Ltd./Corp.
--$21,000,000 class E notes 'BBB';
--$4,785,973 class F notes 'BB+';
--$4,785,973 class G notes 'BB'.
GSC ABS CDO 2006-4u, Ltd.
--$33,000,000 class B notes 'BBB';
--$10,000,000 class C notes 'BB+'.
Mercury CDO 2004-1, Ltd.
--$17,000,000 class C notes 'BBB'.
Northwall Funding CDO I Ltd./Inc
--$18,000,000 class C notes 'BBB'.
NovaStar ABS CDO I Ltd.
--$15,700,000 class D notes 'BBB'.
Orion 2006-1, Ltd.
--$77,000,000 class C notes 'A';
--$33,120,000 class D notes 'BBB'.
Pyxis ABS CDO 2006-1 Ltd.
--$89,000,000 class C notes 'A';
--$40,836,000 class D notes 'BBB'.
Saturn Ventures I, Inc.
--$17,958,264 class B notes 'BBB+'.
Saybrook Point CBO II, Ltd.
--$12,000,000 class C-1 notes 'BBB';
--$6,000,000 class C-2 notes 'BBB';
--$12,000,000 Preference Shares 'BB+'.
SFA ABS CDO III Ltd.
--$50,000,000 class B notes 'A-';
--$12,579,150 class C notes 'B'.
South Coast Funding II Ltd.
--$32,500,000 class B notes 'BB-'.
STACK Ltd., Series 2005-1
--$31,000,000 class series D USD notes 'BBB';
--JPY500,000,000 class series D JPY notes 'BBB'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. |
