Fitch Ratings has downgraded, assigned Distressed Recovery (DR) ratings, and removed from Rating Watch Negative nine classes of notes issued by Norma CDO I Ltd. The following rating actions are effective immediately:
--$950,119,046 class A-1 notes to 'CCC/DR5' from 'B';
--$150,000,000 class A-2 notes to 'C/DR6' from 'B-';
--$86,000,000 class B notes to 'C/DR6' from 'CCC+';
--$50,000,000 class C notes to 'C/DR6' from 'CCC';
--$74,000,000 class D notes to 'C/DR6' from 'CCC-';
--$63,758,133 class E notes to 'C/DR6' from 'CC';
--$11,770,732 class F notes to 'C/DR6' from 'CC';
--$14,713,415 class G notes to 'C/DR6' from 'CC';
--$22,560,570 class H notes to 'C/DR6' from 'CC'.
Fitch's rating actions reflect the collateral deterioration within the portfolio, specifically from subprime residential mortgage backed securities (RMBS).
Norma CDO I is a hybrid cash and synthetic arbitrage collateralized debt obligation (CDO) which closed March 1, 2007, and is managed by NIR Capital Management, LLC. The portfolio is composed primarily of subprime RMBS (96.4%) and vintage Structured Finance (SF) CDOs with exposure to subprime RMBS (3.6%). Subprime RMBS of the 2005, 2006, and 2007 vintages account for approximately 40.5%, 52.7%, and 3.2% of the portfolio, respectively. SF CDOs of the 2006 and 2007 vintages account for approximately 2.5% and 1.1%, respectively.
Since the last review conducted in November 2007, approximately 79.8% of the portfolio has been downgraded. The portion of the portfolio rated below investment grade is now 98.5% while 8.2% of the portfolio is currently on Rating Watch Negative.
On March 10, 2008, the class A overcollateralization ratio fell below 100%, which resulted in an event of default.
Fitch received a notice dated Aug. 4, 2008 stating that as a remedy to the Event of Default (EOD), the majority of holders of the class A notes directed the sale and liquidation of the collateral. Fitch expects that the proceeds from the liquidation of the collateral will not be enough to pay the class A-1, and the subordinate classes are expected to receive no future interest and principal.
The ratings of the class A-1, A-2, B, and C notes address the likelihood that investors will receive full and timely payments of interest, as well as the stated balance of principal by the stated maturity date, pursuant to the governing documents. The ratings of the class D, E, and F notes address the likelihood that investors will receive ultimate interest payments and the stated balance of principal by the stated maturity date. The ratings of the class G and H notes address only the likelihood that investors will receive the stated balance of principal by the stated maturity date, pursuant to the governing documents.
Fitch is reviewing its SF CDO approach and will comment separately on any changes and potential rating impact at a later date. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.