Fitch Ratings has downgraded five classes of notes issued by RFC CDO I, Ltd. (RFC CDO I) as a result of continued credit deterioration in the portfolio since Fitch's last rating action in May 2009. The details of the rating action follow at the end of this press release.
As of the Dec. 31, 2009 trustee report, the current balance of the portfolio is approximately $126.2 million. Approximately 30.9% of the portfolio has been downgraded since May 2009, resulting in approximately 50.3% of the portfolio with a Fitch derived rating below investment grade and 23.1% with a rating in the 'CCC' rating category or below, compared to 13.2% and 8%, respectively, at last review.
This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Structured Finance Portfolio Credit Model (SF PCM) for projecting future default levels for the underlying portfolio. These default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in Corporate CDOs - Amended'. Based on this analysis, the breakeven rates for the classes are generally consistent with the ratings assigned below.
Class A has paid down 17.5% of its balance since last review which offset some of the effect from the negative migration in the portfolio for all classes by increasing their respective credit enhancements.
Fitch revises the Outlooks to Negative for classes A, B1, B2 and C due to the potential for additional negative performance in the underlying assets.
The Loss Severity (LS) ratings of 'LS3', 'LS4' and 'LS5' assigned to the class A, class B1 and B2, and class C notes, respectively, indicate the tranches' 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 Fitch's 'Criteria for Structured Finance Loss Severity Ratings'. The LS rating should always be considered in conjunction with the notes' long-term credit rating. Fitch does not assign LS ratings to tranches rated 'CCC' and below.
RFC CDO I is a structured finance collateralized debt obligation (SF CDO) that closed on June 30, 2004. The portfolio of collateral was originally selected by Residential Funding Corporation and is now monitored by Castle Peak Capital Advisors. The portfolio is composed of residential mortgage-backed securities (90.3%), commercial mortgage-backed securities (5.7%) and SF CDOs (4%).
Fitch has downgraded, assigned LS ratings and revised Rating Outlooks as indicated:
--$55,286,344 class A notes to 'A/LS3' from 'AA'; Outlook to Negative from Stable;
--$22,500,000 class B1 notes to 'BB/LS4' from 'A'; Outlook to Negative from Stable;
--$2,000,000 class B2 notes to 'BB/LS4' from 'A'; Outlook to Negative from Stable;
--$16,200,000 class C notes to 'B/LS5' from 'BB'; Outlook to Negative from Stable;
--$7,288,634 class D notes to 'CCC' from 'BB-'.
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 - Amended' (Nov. 9, 2009);
--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009).
Additional information is available at 'www.fitchratings.com'.
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Kevin
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