Fitch Downgrades 14 B-Piece CRE CDOs on Underlying Portfolio Concentration Risk.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has downgraded $6.5 billion from 14 resecuritizations of subordinated commercial mortgage-backed securities Commercial mortgage-backed securities (CMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on commercial rather than residential real estate. (CMBS CMBS See: Commercial Mortgage Backed Securities ), also referred to as commercial real estate (CRE CRE Commercial Real Estate CRE Corporate Real Estate CRE Commission for Racial Equality (Scotland) CRE CCD (Charge Coupled Device) and Readout Electronics CRE Camp Response Element ) collateralized debt obligations Collateralized Debt Obligation (CDO) A general inclusive term which covers Collateralized Bond Obligations, Collateralized Loan Obligations, and Collateralized Mortgage Obligations, (CDOs) or CMBS B-piece resecuritizations. These rating actions reflect Fitch's view on industry and vintage
Vintage, in wine-making, is the process of picking grapes and creating the finished product. A vintage wine is one made from grapes that were all, or primarily, grown in a single specified year. concentration risks outlined in its revised Structured Finance CDO (Collaborative Data Objects) A programming interface from Microsoft for accessing MAPI-based e-mail, calendaring and scheduling servers. Originally called "OLE Messaging" and "Active Messaging," CDO wraps the Enhanced MAPI library into a COM object that provides the rating criteria released Dec. 16, 2008. All classes were assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. Stable Outlooks reflecting Fitch's expectation that the ratings will remain stable over the next one to two years. Outlooks were not assigned to classes in any 'C' category. These 14 transactions are primarily backed by portfolios of the most junior tranches Tranches A piece, portion or slice of a deal or structured financing. This portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities. "Tranche" is the French word for "slice". of CMBS transactions. Credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing to protect senior notes from underlying portfolio losses is derived through subordination of the more junior tranches, excess spread, and other structural protections incorporated within the structure. Asset analysis was performed through Fitch's Portfolio Credit Model. The liability analysis was performed through Fitch's proprietary cash flow model customized to reflect the specific structural features of each transaction, if any, under various interest rate and default timing stresses. Rating downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. actions in some cases were a full three categories, with a total of 164 classes downgraded. In general rating actions were more severe on eight CDOs that had more recent vintage collateral collateral (kəlăt`ərəl), something of value given or pledged as security for payment of a loan. Collateral consists usually of financial instruments, such as stocks, bonds, and negotiable paper, rather than physical goods, although and a Fitch fitch: see polecat. derived weighted average rating (WAR) in the 'CCC' category compared to the five CDOs that had more seasoned collateral and a Fitch derived WAR in the 'BB/B' category. Approximately 22.9% of the rated bonds by dollar amount remained investment grade. After today's action, of the $1.6 billion of previously 'AAA' rated securities, 20.2% remain 'AAA', 15.6% are downgraded to the 'AA' category, 18.4% are downgraded to the 'A' category, 30.7% are downgraded to the 'BBB' category and 15.1% to the 'BB' category. A spreadsheet spreadsheet Computer software that allows the user to enter columns and rows of numbers in a ledgerlike format. Any cell of the ledger may contain either data or a formula that describes the value that should be inserted therein based on the values in other cells. detailing Fitch's rating actions is available on the Fitch Ratings web site at www.fitchratings.com under the following headers: Structured Finance >> Structured Credit >> Special Reports. The rating actions resolve the 'Under Analysis' status that Fitch issued on Oct. 14, 2008 following Fitch's announcement of its proposed criteria revision for analyzing structured finance (SF) CDOs. The revised criterion was published in its final form on Dec. 16, 2008 along with an updated version of the Fitch Portfolio Credit Model that includes additional functionality for analyzing SF CDOs. Key drivers of the actions include industry concentration, which approaches 100% in CMBS in most transactions, and significant vintage concentrations. Exposure to a single sector of structured finance securities can significantly increase portfolio default rates as the underlying assets may face the same macroeconomic mac·ro·ec·o·nom·ics n. (used with a sing. verb) The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. pressures. Three of the more recent vintage CRE CDOs, have a high concentration of recent vintage CMBS bonds. High vintage concentrations introduce additional systematic risks as the underlying mortgage bonds were originated with common lending standards prevalent prevalent widespread occurrence. at the time of origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real . Another driver for these rating actions is updated recovery rate assumptions upon default. The assets in CRE CDOs tend to be junior CMBS tranches that represent only 3% of the overall capital structure. The relatively thin tranche Tranche One of several related securities offered at the same time. Tranches from the same offering usually have different risk, reward, and/or maturity characteristics. tranche A class of bonds. thickness thickness (thik´nes) a measurement across the smallest dimension of an object. triceps skinfold (TSF) thickness indicates a relatively lower recovery rate on these assets. The lower recovery rates expectations, combined with the higher default rates, resulted in higher rating loss rates compared to the credit enhancement initially structured in these transactions All classes were designated with Stable Rating Outlooks reflecting Fitch's expectation that the ratings will remain stable over the next one to two years. Outlooks were not assigned to classes in any 'C' category. As part of this review, Fitch evaluated the current credit quality of each portfolio and made standard adjustments for any names on Rating Watch Negative, reducing such ratings for default analysis purposes by three notches. First loss, non-rated CMBS bonds are treated as 'CC'. Rating committees give additional consideration to transactions backed by fewer than 30 obligors due to the increased concentrations presented in the pools. For some classes, the committees override An arrangement whereby commissions are made by sales managers based upon the sales made by their subordinate sales representatives. A term found in an agreement between a real estate agent and a property owner whereby the agent keeps the right to receive a commission for the sale of the model output in favor of upon the side of; favorable to; for the advantage of. See also: favor assessing the underlying bond ratings at each rating level to protect against discrete defaults of a minimum number of the largest assets. The following rating commentary summarizes the key factors, on a CDO-specific basis, that support Fitch's rating actions on the affected CDOs. All references to underlying credit quality (Fitch derived weighted average rating) are based on a combination of publicly available ratings, as well as Fitch shadow ratings. Please refer to the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. spreadsheet for transaction-specific rating actions. ACAS ACAS Cardiology A clinical trial–Asymptomatic Carotid Atherosclerosis Study which evaluated the 5-yr risk of fatal and non-fatal stroke-primary outcome in Pts with asymptomatic but severe carotid atherosclerosis. See Carotid stenosis. CRE CDO 2007-1 Ltd./LLC (ACAS 2007-1) ACAS 2007-1 is a static cash flow CRE CDO issued in July July: see month. 2007. The key drivers for the rating actions to this transaction include 100% concentration in CMBS with 88.4% issued between 2006 and 2008 (Vintage 1) and 11.6% issued between 2003 and 2005 (Vintage 2). The transaction's collateral consists of 99.6% in below investment grade bonds, including 42.1% of first loss, non-rated CMBS bonds. The Fitch derived WAR is 'CCC/CCC-' and the weighted average maturity is 7.9 years. The transaction has below-average diversity for CMBS B-piece resecuritizations with 22 obligors. The current credit enhancement for the senior-most class provides protection commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. with a 'BB' rating. Ansonia Ansonia (ănsō`nēə), city (1990 pop. 18,403), New Haven co., SW Conn., on the Naugatuck River; inc. as a city 1893. Its manufactures include brass and copper products, iron castings, foundry products, plastics, and electronic devices. CDO 2006-1 Ltd./LLC (Ansonia 2006-1) Ansonia 2006-1 is a CMBS B-piece resecuritization issued in November November: see month. 2006. The key drivers for the rating actions to this transaction include 94.0% concentration in CMBS, 5.1% concentration in REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). debt, and 1.0% concentration in SF CDOs. Of the collateral, 18.3% was issued between 2006 and 2008 (Vintage 1), 74.8% was issued between 2003 and 2005 (Vintage 2) and 6.9% was issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 89.1% in below investment grade bonds, including 41.1% of first loss, non-rated CMBS bonds. The Fitch derived WAR is 'CCC+' and the weighted average maturity is 8.0 years. The transaction has average diversity for CMBS B-piece resecuritizations with 41 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'BB' rating. Anthracite anthracite (ăn`thrəsīt'): see coal. anthracite or hard coal Coal containing more fixed carbon than any other form of coal and the lowest amount of volatile (quickly evaporating) material, giving it the 2004-HY1, Ltd./Corp. (Anthracite 2004-HY1) Anthracite 2004-HY1 is a static CRE CDO issued in November 2004. The key drivers for the rating actions to this transaction include 100% concentration in CMBS with 35.7% issued between 2003 and 2005 (Vintage 2) and 64.3% issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 100% in below investment grade bonds. The Fitch derived WAR is below 'CCC-' and the weighted average maturity is 2.4 years. The transaction has below average diversity for CMBS B-piece resecuritizations with 14 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'BBB' rating. Anthracite 2005-HY2, Ltd./Corp. (Anthracite 2005-HY2) Anthracite 2005-HY2 is a static CRE CDO issued in July 2005. The key drivers for the rating actions to this transaction include 90.9% concentration in CMBS and 9.1% concentration in REIT debt. Of the collateral 80.2% was issued between 2003 and 2005 (Vintage 2) and 19.8% was issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 79.2% in below investment grade bonds. The Fitch derived WAR is 'B-/CCC+' and the weighted average maturity is 6.6 years. The transaction has below-average diversity for CMBS B-piece resecuritizations with 22 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'BBB' rating. Anthracite CRE CDO 2006-HY3 Ltd. (Anthracite 2006-HY3) Anthracite 2006-HY3 is a static CRE CDO issued in May 2006. The key drivers for the rating actions to this transaction include 74.9% concentration in CMBS and 25.1% concentration in commercial real estate loans (CREL CREL Circular Regional Externa de Lisboa ). Of the collateral, 57.4% was issued between 2006 and 2008 (Vintage 1), 42.2% was issued between 2003 and 2005 (Vintage 2) and 0.4% was issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 91.6% in below investment grade bonds, including 23.0% of first loss, non-rated CMBS bonds. The Fitch derived WAR is 'CCC+' and the weighted average maturity is 7.1 years. The transaction has below-average diversity for CMBS B-piece resecuritizations with 21 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'BB' rating. ARCap 2003-1 Resecuritization, Inc. (ARCap 2003-1) ARCap 2003-1 is a static CRE CDO issued in August 2003. The key drivers for the rating actions to this transaction include 100% concentration in CMBS with 20.1% issued between 2003 and 2005 (Vintage 2) and 79.9% issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 83.0% in below investment grade bonds. The Fitch derived WAR is 'BB-' and the weighted average maturity is 4.5 years. The transaction has below average diversity for CMBS B-piece resecuritizations with 13 obligors. The current credit enhancement for the senior-most class provides protection commensurate with an 'AA+' rating. ARCap 2004-1 Resecuritization, Inc. (ARCap 2004-1) ARCap 2004-1 is a static CRE CDO issued in April 2004. The key drivers for the rating actions to this transaction include 100% concentration in CMBS with 50.4% issued between 2003 and 2005 (Vintage 2) and 49.6% issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 88.2% in below investment grade bonds. The Fitch derived WAR is 'B+' and the weighted average maturity is 7.1 years. The transaction has below average diversity for CMBS B-piece resecuritizations with 17 obligors. The current credit enhancement for the senior-most class provides protection commensurate with an 'AA-' rating. Crest 2003-1 Ltd. (Crest 2003-1) Crest 2003-1 is a static CRE CDO issued in March 2003. The key drivers for the rating actions include 73.2% concentration in CMBS and 26.8% concentration in REIT debt. All of the collateral were issued in 2003 and earlier (Vintage 2 and 3). The transaction's collateral consists of 56.1% in below investment grade bonds. The Fitch derived WAR is 'BB-' and the weighted average maturity is 3.7 years. The transaction has average diversity for CMBS B-piece resecuritizations with 41 obligors. The current credit enhancement for the senior-most class provides protection commensurate with an 'AAA' rating. CT CDO III Ltd./Corp. (CT CDO III) CT CDO III is a static CRE CDO issued in August 2005. The key drivers for the rating actions include 100% concentration in CMBS, all of which was issued in 1999 or earlier (Vintage 3). Approximately 21.8% of the current pool carries a below investment grade rating, including one asset (13.1%) that is currently experiencing principal writedowns. The Fitch derived WAR is 'BB' and the weighted average maturity is 8.3 years. The transaction has below average diversity for CMBS B-piece resecuritizations with 13 obligors. The current credit enhancement for the senior-most class provides protection commensurate with an 'AAA' rating. In Fitch's analysis and review of the transaction's documentation, Fitch interpreted the class A-2 notes as being subordinate to the class A-1 notes, meaning that these notes will absorb losses in the underlying portfolio before the class A-1 notes. Therefore, the class A-2 notes are assigned a lower rating than the class A-1 notes. CT CDO IV Ltd. (CT CDO IV) CT CDO IV is a static CRE CDO issued in March 2006. The key drivers for the rating actions include 62.8% concentration in CMBS, 18.7% concentration in CREL, and 18.5% concentration in CRE CDOs. Of the collateral 56.8% was issued between 2003 and 2005 (Vintage 2) and 39.8% was issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 32.5% in below investment grade bonds. The Fitch derived WAR is 'BB+' and the weighted average maturity is 7.0 years. The transaction has average diversity for CMBS B-piece resecuritizations with 33 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'BBB' rating. JER JER Jeremiah JER Joint Ethics Regulation JER Journal of Educational Research JER Jersey, Channel Islands, United Kingdom - States (Airport Code) JER James E Riley (head writer for NBC soaps) CRE CDO 2006-2, Limited/LLC (JER 2006-2) JER 2006-2 is a managed CRE CDO issued in October October: see month. 2006. The key drivers for the rating actions to this transaction include 72.9% concentration in CMBS, 22.9% concentration in CREL, and 4.2% concentration in SF CDOs. Of the collateral, 64.1% was issued between 2006 and 2007 (Vintage 1), 35.6% was issued between 2003 and 2005 (Vintage 2) and 0.3% was issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 93.1% in below investment grade bonds, including 32.3% of first loss, non-rated CMBS bonds. The Fitch derived WAR is 'CCC' and the weighted average maturity is 7.5 years. The transaction has average diversity for CMBS B-piece resecuritizations with 31 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'B+' rating. LNR LNR Local Nature Reserve (United Kingdom) LNR Last Number Redial LNR London News Radio LNR Left/Node/Right (in order binary tree traversal in computer programming) LNR Local Negotiated Rate CDO 2003-1 Ltd. (LNR 2003-1) LNR 2003-1 is a CMBS B-piece resecuritization issued in July 2003. The key drivers for the rating actions to this transaction include 100% concentration in CMBS with 32.3% issued between 2003 and 2005 (Vintage 2) and 67.7% issued in 2002 and earlier (Vintage 3). The transaction's collateral consists of 78.5% in below investment grade bonds, including 19.0% of first loss, non-rated CMBS bonds. The Fitch derived WAR is 'B/B-' and the weighted average maturity is 4.4 years. The transaction has average diversity for CMBS B-piece resecuritizations with 34 obligors. The current credit enhancement for the senior-most class provides protection commensurate with an 'AAA' rating. LNR CDO V Ltd./Corp. (LNR CDO V) LNR CDO V is a CRE CDO issued in March 2007. The key drivers for the rating actions include 100% concentration in CMBS, all of which was issued in 2006 (Vintage 1). The transaction's collateral consists of 100% in below investment grade bonds, including 34.5% of first loss, non-rated CMBS bonds. The Fitch derived WAR is 'CCC/CCC-' and the weighted average maturity is 8.8 years. The transaction has below-average diversity for CMBS B-piece resecuritizations with 22 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'B' rating. LNR CDO VI Ltd./Corp. (LNR CDO VI) LNR CDO VI is a CRE CDO issued in August 2007. The key drivers for the rating actions include 100% concentration in CMBS, all of which was issued in 2006 and 2007 (Vintage 1). The transaction's collateral consists of 85.4% in below investment grade bonds, including 30.6% of first loss, non-rated CMBS bonds. The Fitch derived WAR is 'CCC+' and the weighted average maturity is 8.7 years. The transaction has below-average diversity for CMBS B-piece resecuritizations with 28 obligors. The current credit enhancement for the senior-most class provides protection commensurate with a 'BB+' rating. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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