Fitch Ratings has downgraded one and affirmed nine classes of ARCap 2004-1 Resecuritization Trust (ARCap 2004-1). The actions are a result of continued negative credit migration within the portfolio. A complete list of rating actions follows at the end of this release.
Since Fitch's last rating action in May 2010, approximately 36.1% of the portfolio has been downgraded. Currently, 96.8% has a Fitch derived rating below investment grade and 44.8% has a rating in the 'CCC' rating category or lower, compared to 95.8% and 28.9%, respectively, at last review. As of the Oct. 25, 2010 trustee report, approximately 28% of the collateral is experiencing interest shortfalls. Further, the transaction has experienced $12.2 million in principal losses and $2.6 million in paydowns since the last review.
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 Corporate CDOs'. Based on this analysis, the class A through D notes' breakeven rates are generally consistent with the ratings assigned below. For the class E through K notes, Fitch analyzed each class' sensitivity to the default of assets experiencing interest shortfalls and/or distressed ('CCC' and below), given the limited expected recovery prospects of these assets upon default.
The Negative Rating Outlook on classes A through D 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 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's long-term credit rating. Fitch does not assign Rating Outlooks or LS ratings to classes rated 'CCC' or lower.
ARCAP 2004-1 is backed by 62 tranches from 16 CMBS transactions and is considered a CMBS B-piece resecuritization (also referred to as first loss CRE CDO/ReREMIC) as it includes the most junior bonds of CMBS transactions. The transaction closed April 19, 2004.
Fitch has taken the following actions:
--$50,995,534 class A notes affirmed at 'BBBsf/LS5'; Outlook Negative;
--$30,600,000 class B notes affirmed at 'BBsf/LS5'; Outlook Negative;
--$26,500,000 class C notes affirmed at 'Bsf/LS5'; Outlook Negative;
--$8,500,000 class D notes affirmed at 'Bsf/LS5'; Outlook Negative;
--$30,700,000 class E notes affirmed at 'CCCsf';
--$13,600,000 class F notes affirmed at 'CCCsf';
--$36,000,000 class G notes affirmed at 'CCsf';
--$13,000,000 class H notes downgraded to 'Csf' from 'CCsf';
--$31,500,000 class J notes affirmed at 'Csf';
--$20,500,000 class K notes affirmed at 'Csf'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 24, 2010);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 15, 2010);
--'Global Criteria for Cash Flow Analysis in CDOs (Sept. 17, 2010);
--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009).
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=564895
Criteria for Structured Finance Loss Severity Ratings
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=426038
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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.