Fitch Ratings has affirmed five and downgraded one class of notes issued by Morgan Stanley 2004-RR. The downgrade to the class F-6 notes reflects the quality of the remaining collateral of which approximately 40.1% are unrated first loss commercial mortgage-backed securities (CMBS) bonds. The affirmations to the senior classes, however, reflect that the performing CMBS collateral covers the balance of these classes.
Fitch withdraws the rating of the interest only class F-X. (For additional information, see 'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities', dated June 23, 2010.)
The affirmations for class F-2 and F-3 are based upon the balance of the 'AAA' rated collateral which is sufficient to cover the balance of these classes. The affirmation of class F-4 reflects the quality of the collateral that would be available to cover the class after the more senior classes are repaid.
This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Rating Criteria for Structured Finance CDOs'. Given the portfolio's concentrated nature, Fitch believes that the probability of default for all classes of notes can be evaluated without factoring potential further losses from the non-defaulted portion of the portfolio. Therefore this transaction was not modeled using the Structured Finance Portfolio Credit Model (SF PCM).
The LS ratings indicate each tranche's potential loss severity given default, as evidenced by the ratio of tranche size to the base-case loss expectation for the collateral. The LS rating should always be considered in conjunction with the probability of default indicated by a class' long-term credit rating. For more information on LS ratings, refer to Fitch's criteria report entitled 'Criteria for Structured Finance Loss Severity Ratings', dated Feb. 17, 2009 and available on Fitch's web site at 'www.fitchratings.com'.
The certificates of MS 2004-RR, which closed June 17, 2004, represent beneficial ownership interest in the trust, assets of which are $73,467,027 of the class F certificates from Morgan Stanley Capital I Inc., series 1997-RR (MS 1997-RR), which is backed by CMBS B-pieces. The class F certificates are collateralized by all or a portion of 12 classes of fixed-rate CMBS in nine separate underlying transactions from the 1996 and 1997 vintages. The pool is concentrated with less than 20% of the original collateral remaining since issuance. Of the collateral 58.5% is currently rated below 'B-' or not rated, and therefore, is more susceptible to losses in the near term. Two bonds (25.6%) are rated 'AAA'.
Fitch has affirmed and revises LS ratings on the following classes as indicated:
--$8,942,275 class F-2 at 'AAAsf'; Outlook Stable; LS rating to 'LS5' from 'LS4';
--$7,241,000 class F-3 at 'AA+sf/LS5'; Outlook Stable;
--$8,236,000 class F-4 at 'BBsf/LS5'; Outlook Negative;
--$13,613,000 class F-5 at 'CCCsf';
--$29,699,752 class F-7 at 'Csf'.
Fitch has downgraded the following class as follows:
--$5,735,000 class F-6 to 'CCsf' from 'CCCsf'.
Class F-1 has paid in full. The rating for Interest-only class F-X has been withdrawn.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from note valuation reports, and the public domain.
Applicable Criteria and Related Research:
--'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).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=418768
Criteria for Structured Finance Loss Severity Ratings
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=426038
Criteria for Rating Caps in Global Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=530687
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