Fitch Ratings has downgraded 18 classes of notes issued by Morgan Stanley Capital I 2005-RR6 (MSCI 2005-RR6) as a result of negative credit migration to the underlying commercial mortgage backed security (CMBS) collateral. 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 15.0% of the portfolio downgraded. Approximately 28.4% of the portfolio has a Fitch derived rating below investment grade with 6.7% having a rating in the 'CCC' rating category or below, compared to 20.6% and 1.0%, respectively, at last review. Currently, six securities (3.6% of the portfolio) are experiencing interest shortfalls or deferring interest payments, and are considered distressed.
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. In its analysis, Fitch also considered the structure's sensitivity to the assets that are experiencing interest shortfalls (3.63%). The Rating Loss Rates (RLR) were then compared to the credit enhancement of the classes. Based on this analysis, the credit enhancement for the classes A-2FL, A-2FX, A-3FL, A-3FX, A-J, and class B are generally consistent with the ratings assigned below.
The Negative Rating Outlook on the notes reflects Fitch's expectation that underlying CMBS loans will continue to face refinance risk at maturity. Fitch also assigned Loss Severity (LS) ratings to the classes A-2FL, A-2FX, A-3FL, A-3FX, and A-J notes. 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.
Classes C through N notes do not pass the 'CCC' stress in the PCM model. Therefore, Fitch compared the credit enhancement levels to the portion of the portfolio considered distressed to determine the probability of default at or prior to maturity. Classes C through G have been downgraded to 'CC', indicating that default is probable. Although their credit enhancement levels currently exceed the total percentage of assets experiencing interest shortfalls or deferring interest, further deterioration could quickly erode that cushion. Classes H through N have been downgraded to 'C', indicating that default is inevitable given that the total percentage of assets experiencing interest shortfalls exceeds the credit enhancement available to each class.
Additionally, Fitch has withdrawn the rating of the interest-only class X. (For additional information, see 'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities', June 23, 2010).
MSCI is a static collateralized debt obligation (CDO) that closed on Oct. 15, 2005. The current portfolio consists of 76 bonds from 51 CMBS transactions, 7.8% of which were issued between 2003 and 2005 and 92.2% were issued in 2002 and earlier.
Fitch has taken the following actions, including assigning LS ratings and revising Outlooks for the following classes as indicated:
--$76,360,576 Class A-2FL downgraded to 'A/LS3' from 'AA-'; Outlook to Negative from Stable;
--$81,610,000 Class A-2FX downgraded to 'A/LS3' from 'AA-'; Outlook to Negative from Stable;
--$60,000,000 Class A-3-FL downgraded to 'A/LS3' from 'AA-'; Outlook to Negative from Stable;
--$110,551,000 Class A-3-FX downgraded to 'A/LS3' from 'AA-'; Outlook to Negative from Stable;
--$50,061,000 Class A-J downgraded to 'BB/LS4' from 'BBB+'; Outlook to Negative from Stable;
--Interest-only, class X withdrawn;
--$27,498,000 Class B downgraded to 'CCC' from 'BB+';
--$14,102,000 Class C downgraded to 'CC' from 'B+';
--$2,115,000 Class D downgraded to 'CC' from 'B+';
--$8,461,000 Class E downgraded to 'CC' from 'B';
--$4,231,000 Class F downgraded to 'CC' from 'B';
--$6,346,000 Class G downgraded to 'CC' from 'B-';
--$7,050,000 Class H downgraded to 'C' from 'CCC';
--$2,821,000 Class J downgraded to 'C' from 'CCC';
--$2,820,000 Class K downgraded to 'C' from 'CCC';
--$1,410,000 Class L downgraded to 'C' from 'CCC';
--$2,116,000 Class M downgraded to 'C' from 'CCC';
--$1,410,000 Class N downgraded to 'C' from 'CCC'.
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);
--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009);
--'Rating Caps in Structured Finance' (June 23, 2010).
Additional information is available at 'www.fitchratings.com'.
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