Fitch Ratings has downgraded two and affirmed three classes of notes issued by Blue Heron Funding VI, Ltd. (Blue Heron VI) as follows:
--$975,573,547 class A-1 notes downgraded to 'CCC' from 'BBB-';
--$25,000,000 class A-2 notes downgraded to 'CC' from 'B';
--EUR89,936,000 (USD equivalent $105,000,000) class B notes affirmed at 'C';
--EUR89,936,000 (USD equivalent $105,000,000) class B additional interest affirmed at 'C' (interest only);
--$6,250,000 certificates affirmed at 'AAA' (principal only).
Additionally, Fitch has removed class A-1 and A-2 notes from Rating Watch Negative. The notes were not assigned Rating Outlooks as Fitch does not assign Rating Outlooks to classes rated 'CCC' or below.
These rating actions are a result of the continued credit deterioration of the portfolio since the last review in May 2008. Approximately 27.4% of the portfolio is rated below investment grade, of which 16.1% is rated 'CCC' and lower compared to 13.6% rated below investment grade in May 2008.
The class A overcollateralization ratio of 93.2% is failing its covenant of 102% and continues to redirect interest proceeds that would otherwise pay interest to class B to pay down the class A-1 notes. The class A-1 notes have paid off approximately 12.4% since closing. Fitch has downgraded this class to 'CCC' as this is a better reflection of the risk to these notes due to the deterioration of the portfolio. The downgrade also reflects the notes exposure to interest rate risk, as all notes have a floating-rate coupon while over 40% of assets pay a fixed-rate coupon and no interest rate swap exists. The class A-2 notes are downgraded to 'CC' as they continue to receive interest but Fitch does not anticipate future principal payments.
The rating assigned to the certificates is based on the rating of the certificate protection asset, which is comprised of U.S. government-backed Resolution Funding Corp. zero-coupon bonds.
Blue Heron VI is a structured finance CDO, which closed on Dec. 21, 2005. The portfolio is monitored by Brightwater Capital Management. The transaction's revolving period ended in May 2008. The rating actions incorporate Fitch's recently adjusted default and recovery rate assumptions for analyzing structured finance (SF) CDOs, in addition to negative credit migration in the underlying portfolio. The portfolio is primarily composed of commercial mortgage-backed securities (CMBS) (44.1%), subprime residential mortgage-backed securities (RMBS) (27.7%), SF CDOs (14.3%), prime RMBS (7.5%), other CDOs (5.5%), and commercial and consumer ABS (0.9%).
These rating actions resolve the 'Under Analysis' status issued on Oct. 14, 2008 following Fitch's announcement of its proposed criteria revision for analyzing SF CDOs. The revised criteria report, 'Global Rating Criteria for Structured Finance CDOs', was published in its final form on Dec. 16, 2008 along with an updated version of the Fitch Portfolio Credit Model that includes additional functionality for analyzing SF CDOs. As part of this review, Fitch makes standard adjustments for any names on Rating Watch Negative or with a Negative Outlook, downgrading such ratings for default analysis purposes by three and one notches, respectively.
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.
Contacts:
Fitch Ratings, New York
Brian Vorderbrueggen, 212-908-9102
Kevin
Kendra, 212-908-0760
Sandro Scenga, 212-908-0278 (Media Relations)
sandro.scenga@fitchratings.com