(This is a revision of a release issued earlier today. It clarifies that the 'F2' short-term rating for class I-MM was also placed on Rating Watch Negative.)
Fitch Ratings has downgraded five classes and placed on Rating Watch Negative two classes issued by Newcastle CDO VI, Limited (Newcastle VI) as a result of credit deterioration of the recent vintage residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) collateral within the portfolio.
Fitch places the following classes on Rating Watch Negative:
--$315,692,316 class I-MM notes 'BBB/F2';
--$59,000,000 class I-B notes 'BB'.
Fitch downgrades the following classes:
--$33,021,499 class II notes to 'CCC' from 'B+'; Outlook Negative;
--$15,061,946 class III-FL notes to 'CC' from 'B';
--$5,095,206 class III-FX notes to 'CC' from 'B';
--$9,668,567 class IV-FL notes to 'C' from 'B-';
--$2,452,827 class IV-FX notes to 'C' from 'B-'.
Additionally, classes III and IV have been removed from Rating Watch Negative.
Fitch expects to resolve the Negative Watch status over the next few months.
Since Fitch's last rating action in May 2009, 9.3% of the portfolio has been downgraded and an additional 11.9% has been placed on Rating Watch Negative. Based on Fitch derived ratings, 60.5% of the portfolio is rated below investment grade; including 9.9% rated 'CCC' or lower. As a basis for comparison, at issuance 26.6% of the portfolio was rated below investment grade with the lowest rating at 'B'. Additionally, as of the June 2009 trustee report, 6.9%, or $33.9 million, of the current portfolio is now considered defaulted per the transaction's governing documents.
The collateral deterioration within the portfolio has caused each of the overcollateralization (OC) ratios to decline further and breach its respective covenant. The failure of the class I OC test has caused all interest proceeds otherwise available to pay interest to classes II through IV, to be used to redeem the class I-MM notes. As of the June 2009 trustee report, the class I OC test is 114.4%, compared to its covenant of 118%. Similarly, the class II, III and IV OC tests are failing their respective triggers. To date, approximately 2.3% of the original balance of the class I-MM notes has been redeemed.
For underlying bonds not rated by Fitch, Fitch's CDO rating methodology stipulates an input of the lower of the ratings assigned by either Moody's or S&P. Fitch does not rate 41.2% of the bonds in this transaction.
Newcastle VI is a managed CDO, which closed April 19, 2005. Currently, the portfolio is composed of 51.4% commercial mortgage-backed securities (CMBS) from the 2003 through 2007 vintages, 16.5% residential mortgage backed securities (RMBS) from the 2004 through 2007 vintages, 14.9% real estate investment trust (REIT) debt, 13.9% commercial real estate loans (CREL), and 3.4% corporate loans.
The rating of the class I-MM and I-B (collectively class I) notes addresses the likelihood that investors will receive timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class II, III, IV notes address the likelihood that investors will receive ultimate interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.
The applicable criteria report 'Global Rating Criteria for Structured Finance CDOs' dated Dec. 16, 2008 is available on Fitch's 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.
Contacts:
Fitch Ratings, New York
Karen Trebach, +1-212-908-0215
Jenny
Story, +1-212-908-0302
Sandro Scenga, +1-212-908-0278 (Media
Relations)
sandro.scenga@fitchratings.com