Fitch Ratings has downgraded seven classes of notes issued by Acacia CDO 6, Ltd. (Acacia 6). The details of the rating action follow at the end of this press release.
Fitch's Global Structured Finance Collateralized Debt Obligation (SF CDO) criteria were used to analyze the quality of the underlying securities in Acacia 6. These rating actions are the result of continued credit deterioration in the portfolio since Fitch's last rating action in February 2009 as well as the acceleration of maturity of the notes resulting from the Event of Default (EOD) that occurred on May 14, 2009.
The credit deterioration of the portfolio is primarily attributed to the large wave of downgrades to 2004 vintage residential mortgage backed securities (RMBS) over the summer. Approximately 72.1% of the portfolio has been downgraded since the last review, including about 40.7% of the portfolio downgraded since June 1, 2009. The downgrades to the portfolio have left approximately 72.8% of the portfolio with a Fitch derived rating below investment grade and 39.6% with a rating in the 'CCC' rating category or lower, compared to 40.7% and 11.4%, respectively at last review.
As a result of the negative rating migration since the last review, the Class A/B overcollateralization (OC) ratio fell below 100% which resulted in the EOD. As a remedy to the EOD, the class A-1 notes as the controlling class voted to accelerate the maturity of the transaction. Consequently, all interest that would otherwise be paid to the classes A-2 and B notes along with all principal proceeds are paid to the class A-1 notes until paid in full.
Despite the benefit of the acceleration to the class A-1 notes, this class has been downgraded to 'B' to reflect the increased likelihood of default, given the deterioration in the underlying portfolio. In addition, given rating volatility of the underlying RMBS assets, the class A-1 notes will remain on Rating Outlook Negative to reflect the potential that this class could be further downgraded over the next one to two years.
The class A-1 notes are assigned a Loss Severity (LS) rating of LS3. The LS ratings indicate each 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'. The LS rating should always be considered in conjunction with the probability of default for tranches.
Due to the acceleration of maturity, the class A-2 and class B notes are not receiving interest. These classes are rated to the timely receipt of interest and have defaulted on interest payments. Therefore these notes have been downgraded to 'D'.
The classes C, D and E notes are downgraded to 'C' to indicate Fitch's belief that default is inevitable at or prior to maturity. Fitch does not assign outlooks and loss severity to tranches rated below 'B' category.
Acacia 6 is a SF CDO that closed on July 15, 2004. MBIA Capital Management Corp monitors the portfolio and took over all collateral management responsibilities from RWT Holdings, Inc. on Aug. 21, 2009. The portfolio is composed primarily of RMBS with 80.5% of the portfolio from this sector. In addition, 11.9% consists of CDOs, and 7.6% commercial mortgage-backed securities (CMBS).
Fitch has downgraded the following and assigned LS ratings as follows:
Acacia CDO 6, Ltd.
--$130,824,149 class A-1 to 'B/LS3' from 'A'; the, Outlook remains Negative;
--$15,000,000 class A-2 to 'D' from 'BBB';
--$27,000,000 class B to 'D' from 'BB+';
--$6,500,000 class C to 'C' from 'BB-';
--$3,000,000 class D to 'C' from 'B+';
--$1,500,000 class E-1 to 'C' from 'CCC';
--$7,000,000 class E-2 to 'C' from 'CCC'.
Rating Outlooks are not assigned to tranches rated 'CCC' and lower.
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);
--'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
Alina Pak, 312-368-3184, Chicago
Kevin Kendra,
212-908-0760, New York
or
Media Relations:
Sandro Scenga,
212-908-0278, New York
Email: sandro.scenga@fitchratings.com
