Fitch Ratings downgrades one class and affirms four classes of notes issued by Rosemont CLO, Ltd./Corp. (Rosemont) and assigns Rating Outlooks to four classes as follows:
--$94,780,485 class A affirmed at 'AAA'; Outlook Stable;
--$18,000,000 class B-1 affirmed at 'A'; Outlook Stable;
--$7,000,000 class B-2 affirmed at 'A'; Outlook Stable;
--$13,200,000 class C affirmed at 'BBB+'; Outlook Negative;
--$12,000,000 class D downgraded to 'CCC' from 'BBB'.
Rosemont is a cash flow collateralized loan obligation (CLO) that closed in January 2002 and is managed by Deerfield Capital Management LLC. Rosemont is currently in its amortization period which began in January 2007. The portfolio is comprised of 98% senior secured loans with the balance consisting of second lien loans. The three largest Fitch industry categories represented in the Rosemont portfolio are gaming, leisure & entertainment (12.1%), banking & finance (10.2%), and healthcare (9%).
The average credit quality of the portfolio as of the latest trustee report dated Jan. 7, 2009 is 'BB-/B+', which is unchanged from the last review in December 2007. The issuer is currently passing the maximum weighted average Fitch rating factor (WARF) test. Defaulted securities of $10.1 million represent approximately 6.3% of the portfolio balance. Roughly 7.5% of the portfolio was rated 'CCC+' or lower. In addition, assets on Rating Watch Negative or with a Negative Outlook by at least one rating agency totaled 6.2% and 23%, respectively, of the portfolio balance. In accordance with Fitch's Corporate CDO criteria, Fitch makes standard downward adjustments for any names on Rating Watch Negative by two notches or Outlook Negative by one notch.
Class A notes have received $157.2 million, or 62.4%, of their initial balance since the start of the amortization period. The credit enhancement of the class A and B notes has improved as a result of this amortization. Fitch affirms and assigns a Stable Rating Outlook to the class A and B notes primarily due to the improvement in credit enhancement available to these notes.
The improvement in the class C and D credit enhancement was offset by deterioration in the portfolio as noted above. At this time, the credit enhancement available to the class C note is consistent with a 'BBB+' rating. If realized Recovery Rates on current and future defaults are lower than historically observed, the class C notes may experience downward rating pressure. Therefore Fitch assigns a Negative Rating Outlook to the class C notes.
Fitch downgrades the class D notes to 'CCC' to reflect the expected losses on the defaulted assets currently held in the portfolio. This rating change also considers the impact of future defaults on the portfolio given the profile of assets rated 'CCC+' and lower, on Rating Watch Negative or Negative Outlook. Fitch does not assign Rating Outlooks to structured finance bonds rated 'CCC' and below.
The rating of the class A notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class B-1, B-2, C and D notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date.
On April 30, 2008, Fitch released updated rating criteria for Corporate CDOs, which was used for this analysis. For more information, please refer to the reports titled 'Global Rating Criteria for Corporate CDOs' and 'Global Criteria for Cash Flow Analysis in Corporate CDOs' available on Fitch's web site at www.fitchratings.com.
With these rating actions, Fitch assigns Outlooks to the class A, B and C notes in accordance with its report 'Introducing Rating Outlooks for U.S. Structured Finance Bonds' dated Sept. 11, 2008. Fitch's Rating Outlooks indicates the likely direction of any rating change over a one- to two-year period and may be Positive, Negative, Stable or, occasionally, Evolving.
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.
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