Fitch Ratings has affirmed two classes issued by Pegasus 2007-1 Ltd. (Pegasus 2007-1) as follows:
--$112,000,000 class A-1 at 'BB/LS1'; Outlook Negative;
--$1,400,000 class A-2 at 'BB/LS5'; Outlook Negative.
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 reference portfolio. The degree of correlated default risk of this reference collateral is high given the single sector and vintage concentration. Based on this analysis and the credit enhancement available to class A-1 and A-2, the credit characteristics of the bonds are consistent with the current 'BBsf' rating. Approximately 10.7% of the portfolio has been downgraded since Fitch's last rating action in May 2010 and 7.1% is currently on Rating Watch Negative. All assets remain investment grade, with the lowest rated asset in the reference portfolio carrying a Fitch derived rating of 'BBB-'.
The Negative Outlook on the notes reflects the potential for further negative migration in the reference portfolio which consists of commercial mortgage backed securities (CMBS) from the 2006 vintage. 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 'Mean' stress. The LS rating should always be considered in conjunction with probability of default indicated by a class' long-term credit rating.
Pegasus 2007-1, issued in April 2007, is a synthetic securitization referencing a portfolio of 28 $100 million class A-M CMBS bonds. The transaction is designed to provide credit protection for realized losses on the reference portfolio through a credit default swap between the issuer and the swap counterparty, DEPFA BANK PLC. (DEPFA) rated 'BBB+/Outn/F2' by Fitch. An amount equal to $20,000,000 minus the aggregate amount of any actual principal writedowns is available as subordination with respect to each reference obligation. Until the writedowns related to a reference obligation exceed $20,000,000 the issuer will not be required to pay any cash settlements upon the trigger of a credit event. To date there have been no principal writedowns.
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 Rating Criteria for Synthetic CDOs' (March 9, 2009);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 15, 2010);
--'Global Structured Finance Rating Criteria' (Aug. 15, 2010).
Applicable Criteria and Related Research:
Global Rating Criteria for Synthetic CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=428408
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564895
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