Fitch Ratings has affirmed five classes of notes issued by E*Trade ABS CDO I, Ltd. (E*Trade I) as follows:
--$6,600,000 class A-2 notes at 'Bsf', Outlook Negative;
--$25,000,000 class B notes at 'Csf';
--$11,596,848 class C-1 notes at 'Csf';
--$4,695,725 class C-2 notes at 'Csf';
--$5,331,081 composite securities at 'Csf'.
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. The transaction was not reviewed within a cash flow model framework because the effect of structural features and principal collections leaking to pay interest obligations is expected to be minimal going forward. Therefore, Fitch considered the SF PCM output and additional qualitative factors into its analysis, as described below, to conclude the rating affirmations for the notes.
Since the last rating action in February 2011, the credit quality of the collateral has deteriorated with approximately 29.5% of the portfolio downgraded a weighted average of 3.7 notches. Approximately 92.4% of the portfolio has a Fitch derived rating below investment grade and 75% has a rating in the 'CCC' rating category or lower, compared to 90.7% and 62.6%, respectively, at last review.
The class A-2 notes have received $3 million in principal repayment since the last review, which has increased credit enhancement (CE) to offset the deterioration in the underlying portfolio. Comparing the class A-2 CE to the SF PCM rating loss rate (RLR) output indicates the class has cushion to the 'Bsf' rating stress. However, the class A-2 notes are affirmed because the portfolio continues to deteriorate and is becoming increasingly concentrated with 23 assets remaining. Approximately 35% of the assets are not paying interest so principal is still needed to cover a small portion of class B interest even after the interest rate hedge expired in October 2011. The amount is not expected to be substantial, but will erode some of the CE cushion to the 'Bsf' RLR.
The Outlook remains Negative for the class A-2 notes because the portfolio is highly concentrated and susceptible to adverse selection.
The class B and C notes and the composite securities are undercollateralized by the par balance of the remaining portfolio, indicating default remains inevitable for these classes at or prior to maturity.
E*Trade I is a static structured finance collateralized debt obligation (SF CDO) that closed on Sept. 26, 2002. The initial portfolio was selected by E*Trade Global Asset Management, Inc. and is now monitored by Vertical Capital, LLC. The portfolio is comprised of residential mortgage-backed securities (52.4%), SF CDOs (24.8%), commercial mortgage-backed securities (20.4%) and commercial asset-backed securities (2.4%) from 2001 and 2002 vintage transactions.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, note valuation reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2011);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 6, 2011).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646569
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651560
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