NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded one and affirmed 10 classes issued by LNR CDO IV series 2006-1, Ltd. (LNR CDO IV) as a result of an interest payment default on the class A notes. A complete list of rating actions follows at the end of this press release.
Since Fitch's last review in April 2010, approximately 43.6% of the portfolio has been downgraded. Currently, 97.9% has a Fitch derived rating below investment grade and 78.8% has a rating in the 'CCC' rating category or lower, compared to 98.3% and 66.1% at last review. As of the Jan. 25, 2011 trustee report, 80.2% of the collateral is currently experiencing interest shortfalls, compared to 56.9% at last review.
On April 2, 2010, the trustee declared an event of default (EOD) due to non-payment of full and timely accrued interest to the class B notes. According to the Jan. 28, 2010 payment date, the class A and B notes are not receiving their full and timely accrued interest due to the significant hedge termination payment which is senior in priority to the class A notes. All available proceeds are being distributed to the interest rate hedge counterparty as hedge termination payments. Fitch has therefore downgraded the class A notes and affirmed the class B notes at 'Dsf'.
This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Rating Criteria for Structured Finance CDOs'. However, given the portfolio's distressed 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).
For classes C through G, Fitch compared the respective credit enhancement levels to the amount of distressed assets ('CC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, classes C through G have been affirmed at 'Csf', indicating that default is inevitable at maturity.
LNR CDO IV is collateralized by all or a portion of 131 classes in 35 separate underlying commercial mortgage-backed securities (CMBS) transactions. Approximately 18.9% of the collateral currently is not rated and represents the first loss position of the respective underlying CMBS transaction. All underlying classes are thin, junior tranches that are susceptible to losses in the near term.
Fitch has taken the following actions as indicated:
--$474,385,000 class A notes downgraded to 'Dsf' from 'Csf';
--$204,174,000 class B-FL notes affirmed at 'Dsf';
--$10,000,000 class B-FX notes affirmed at 'Dsf';
--$73,154,000 class C-FL notes affirmed at 'Csf';
--$54,950,000 class C-FX notes affirmed at 'Csf';
--$10,000,000 class D-FL notes affirmed at 'Csf';
--$54,052,000 class D-FX notes affirmed at 'Csf';
--$72,058,000 class E notes affirmed at 'Csf';
--$25,000,000 class F-FL notes affirmed at 'Csf';
--$31,046,000 class F-FX notes affirmed at 'Csf';
--$78,063,000 class G notes affirmed at 'Csf'.
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' (Aug. 13, 2010);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 15, 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=564895
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.