Fitch Ratings has downgraded three classes and affirmed two classes of notes issued by Glacier Funding CDO III, Ltd./Inc. (Glacier III) as a result of continued credit deterioration in the portfolio since Fitch''s last rating action in August 2008. A detailed list of rating actions follows at the end of this release.
The transaction entered an Event of Default on Jan. 21, 2010 due to failure of the ratio of the collateral balance to be equal to or greater than 100% of the Aggregate Outstanding Amount of the Class A Notes. On Feb. 3, 2010 a majority of the class A-1 notes as the controlling class directed the trustee to declare the principal of all the notes to be immediately due and payable (acceleration of maturity). The acceleration of maturity has not changed payment priority for this transaction.
As of the February 2010 trustee report, the current balance of the portfolio (including cash) is $214.2 million. Approximately 77.2% of the portfolio has been downgraded since the last review. Defaulted securities, as defined in the transaction''s governing documents, now comprise 56% of the portfolio, compared to 11.2% at last review. The downgrades to the portfolio have left approximately 55.3% of the portfolio (including defaults) with a Fitch derived rating below investment grade and 36.8% with a rating in the ''CCC'' rating category or lower, compared to 48.3% and 27.2%, respectively, at last review.
This review was conducted under the framework described in the report ''Global Rating Criteria for Structured Finance CDOs''. Due to the magnitude of the collateral deterioration, Fitch believes that the likelihood of default for all classes of notes can be assessed without using the Structured Finance Portfolio Credit Model (SF PCM) and performing cash flow model analysis under the framework described in the ''Global Criteria for Cash Flow Analysis in CDOs - Amended'' report.
Fitch compared the credit enhancement level of the class A-1 notes with the amount of underlying assets considered distressed (rated ''CCC'' and lower). These assets have a high probability of default and low expected recoveries upon default. The credit enhancement level of the class A-1 notes is 3%, as compared to the 36.8% of the portfolio considered distressed. Therefore, the class A-1 notes as well as the class A-2 and B notes have been downgraded to ''C'' to indicate Fitch''s belief that default is inevitable at or prior to maturity.
The class C and D notes are also no longer receiving interest distributions and are not expected to receive any proceeds going forward. Therefore, these notes have been affirmed at ''C'' to indicate Fitch''s belief that default is inevitable at or prior to maturity.
Glacier III is a cash flow SF CDO that closed on July 29, 2005. The portfolio was initially selected by Terwin Money Management, LLC and is now monitored by Aventine Hill Capital, LLC. The portfolio is composed of residential mortgage-backed securities (RMBS) (76.5%), commercial mortgage-backed securities (CMBS) (20.1%), real estate investment trusts (REITs) (3%), and asset-backed securities (ABS) (0.4%).
Fitch has downgraded the following classes:
--$207,755,289 class A-1 notes to ''C'' from ''B'';
--$61,342,561 class A-2 notes to ''C'' from ''CCC'';
--$38,850,289 class B notes to ''C'' from ''CC''.
Fitch has affirmed the following classes:
--$25,346,322 class C notes at ''C'';
--$3,331,966 class D notes 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 -Amended'' (Nov. 9, 2009).
Additional information is available at ''www.fitchratings.com''.
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