Fitch Ratings has downgraded four classes of notes issued by Crest G-Star 2001-2, Ltd. (Crest G-Star 2001-2) due to negative credit migration in the underlying portfolio. The details of the rating action follow at the end of this release.
Since the last rating action in January 2009, the credit quality of the portfolio has declined with approximately 22.7% of the portfolio downgraded a weighted average of 1.5 notches. Approximately 22.7% of the portfolio has a Fitch derived rating below investment, compared to 17.8% at last review. Currently, the portfolio comprises three securities (10.4%) that are experiencing interest shortfalls or deferring interest payments.
This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. Fitch also analyzed the structure's sensitivity to the assets that are experiencing interest shortfalls. Based on this analysis, the breakeven rates for the class A and class B-1 and B-2 (together, class B) notes are generally consistent with the ratings assigned below.
The Negative Rating Outlook on class A and class B reflects Fitch's expectation that underlying commercial mortgage backed security (CMBS) loans will continue to face refinance risk at maturity. Fitch also assigned Loss Severity (LS) ratings to the class A and class B. The LS ratings indicate each tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the expected loss for the collateral under the 'B' stress. The LS rating should always be considered in conjunction with probability of default indicated by a class' long-term credit rating. Fitch does not assign Rating Outlooks or LS ratings to classes rated 'CCC' or lower.
The cash flow model produced no breakeven rates for the class C notes. The notes are downgraded to 'C', indicating that default appears inevitable, because its credit enhancement level is surpassed by the percentage of assets currently experiencing interest shortfalls.
Crest G-Star 2001-2 is a static collateralized debt obligation (CDO) that closed on Dec. 18, 2001. The current portfolio consists of 31 bonds from 27 obligors, of which 42.9% are CMBS, 54.6% are real estate investment trust debt securities and 2.5% are CMBS rake bonds secured by subordinate portions of commercial real estate loans from 1998 through 2001 vintage transactions.
Fitch has downgraded, assigned LS ratings and revised Outlooks for the following classes as indicated:
--$173,607,753 class A notes to 'AA/LS2' from 'AAA', Outlook revised to Negative from Stable;
--$34,000,000 class B-1 notes to 'B/LS3' from 'BBB-', Outlook revised to Negative from Stable;
--$15,000,000 class B-2 notes to 'B/LS3' from 'BBB-', Outlook revised to Negative from Stable;
--$21,000,000 class C notes to 'C' from 'B+'.
These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009);
--'Global Rating Criteria for Structured Finance CDOs' (Dec. 16, 2008);
--'Global Criteria for Cash Flow Analysis in CDOs-Amended' (Nov. 9, 2009);
--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009).
Additional information is available at 'www.fitchratings.com'.
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