Fitch Ratings has downgraded three and affirmed two classes of notes issued by Glacier Funding CDO II, Ltd./Corp. (Glacier II) as a result of continued credit deterioration in the portfolio since August 2008. Approximately 61.6% of the portfolio has been downgraded since the last review. Details of the rating action follow at the end of this press release.
The downgrades to the portfolio have left approximately 35.8% of the portfolio with a Fitch-derived rating below investment grade and 29.8% with a rating in the 'CCC' rating category or lower, compared to 29.1% and 15.5%, respectively at last review. Defaulted securities, as defined in the transaction's governing documents, now comprise 22.7% of the portfolio, compared to 12.5% at last review. The current balance of the portfolio is $224.6 million including $50.8 million defaulted securities.
This review was conducted 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.
For class A-1 notes, these default levels were compared to the breakeven levels generated by Fitch's cash flow model under various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'.
Based on this analysis, the class A-1 notes' breakeven rates are generally consistent with the rating assigned below. Fitch assigns a Negative Outlook to the class A-1 given its expectation for the continuing rating volatility in the portfolio.
The class A-1 notes are assigned an LS rating of 'LS3'. The LS rating indicates a tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the base-case loss expectation for the collateral, as explained in 'Criteria for Structured Finance Loss Severity Ratings'. This ratio for the class A-1 is in the range of 1.1 to 4. The LS rating should always be considered in conjunction with the probability of default for tranches.
The 'CCC' rating loss rate, the lowest rating level loss projected by PCM, exceeded the breakeven rates for all other classes of notes. Further, assets considered distressed and defaulted, at 29.8% and 22.7%, respectively, exceeded these classes' credit enhancement levels. Accordingly, Fitch believes that default is probable for the class A-2 notes and inevitable for all other classes.
Glacier II is a structured finance collateralized debt obligation (SF CDO) that closed on October 12, 2004. On Aug. 7, 2009 collateral management responsibilities were transferred to Aventine Hill Capital, LLC from Terwin Money Management LLC. The portfolio is composed primarily of residential mortgage-backed securities (RMBS) 75.8%, commercial mortgage-backed securities (CMBS) 16.9%, CDOs 4.7%, real estate investment trusts (REITs) 1.3%, and asset-backed securities (ABS) 1.3%.
Fitch has affirmed, downgraded, or assigned a Loss Severity (LS) rating and Outlook, as indicated:
Glacier Funding II, Ltd./Corp.:
--$105,683,695 class A-1 notes downgrade to 'BBB/LS3' from 'AA-'; Outlook Negative;
--$70,000,000 class A-2 notes downgraded to 'CC' from 'BBB-';
--$65,750,000 class B notes downgraded to 'C' from 'CCC';
--$20,485,741 class C notes affirmed at 'C';
--$4,944,831 class D notes affirmed at 'C'.
These rating actions reflect the application of Fitch's current criteria which are available at www.fitchratings.com and specifically include the following reports:
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009).
--'Global Rating Criteria for Structured Finance CDOs' (Dec. 16, 2008);
--'Global Criteria for Cash Flow Analysis in CDOs' (November 9, 2009);
--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009).
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings
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Kevin
Kendra, +1-212-908-0760 (New York)
or
Sandro Scenga,
+1-212-908-0278
(Media Relations, New York)
sandro.scenga@fitchratings.com
