Fitch Ratings has downgraded one and affirmed one class of notes issued by HarbourView CDO III, Ltd. (HarbourView III) as follows:
--$66,463,229 class A Notes downgraded to 'CCC' from 'B/DR2'; 'DR2' withdrawn;
--$22,500,000 class B Notes affirmed at 'C'; 'DR6' withdrawn.
The rating actions to the notes are the result of the continued deterioration of the underlying portfolio. According to the April 2009 trustee report, assets deemed defaulted comprise 36.9%, or $32.2 million, of the current portfolio. In addition, after making standard adjustments for Rating Watch and Outlook Negative status as described in the Structured Finance CDO rating criteria, assets rated below investment grade comprise 51.2% of the current portfolio, including 46.7% rated in the 'CCC' and lower category.
The continuous deterioration of the portfolio has caused further erosion to each of the overcollateralization (OC) ratios. Tthe class A/B and class C OC ratios are currently at 62.3% and 44.5%, respectively, versus the respective triggers of 106% and 101%.
HarbourView III entered an event of default (EOD) in March 2005, due to the aggregate principal balance of the collateral debt securities falling below the combined outstanding balance of the class A and B notes. Subsequently, the majority of the class A noteholders elected to accelerate the transaction. Since June 2005, all collected interest proceeds have been used to pay transaction related fees and expenses, hedge counterparty payments, and class A current interest. The remaining interest proceeds have been used to amortize the class A notes
On the last payment date in March 2009, $1.8 million, or 0.6%, of the original principal balance of class A notes has been amortized, bringing its balance to approximately $66.5 million, or 51% of the current capital structure. To date, collectively $244.8 million, 78.7%, of the class A notes' principal has amortized down. Fitch expects the notes to continue receiving their quarterly interest payments in the foreseeable future. Nevertheless, given the composition and performance of the portfolio, Fitch projects that only a portion of the class A notes principal balance will be repaid by the stated maturity date in September 2036
As a result of the acceleration, interest to the class B notes has been paid-in-kind since June 2005, whereby the principal balance of the notes has been written up by the amount of interest owed. Fitch does not expect this class of notes to receive any future payments.
HarbourView III is a cash flow CDO that closed on April 24, 2001 and is managed by HarbourView Asset Management Corporation. Current portfolio is comprised of: 32% commercial and consumer asset-backed securities (ABS), 28.2% residential mortgage-backed securities (RMBS), of which 13.1% are subprime RMBS; 18.9% senior unsecured REIT debt; 12.9% commercial mortgage-backed securities (CMBS); 5.7% high yield corporate CDOs, and 2.2% senior unsecured corporate bond.
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' dated Dec. 16, 2008 is available on the Fitch Ratings web site at www.fitchratings.com.
Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are also available 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.
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