NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded three and affirmed seven classes issued by ARCap 2003-1 Resecuritization, Inc. (ARCap 2003-1). A complete list of rating actions follows at the end of this press release.
KEY RATING DRIVERS:
Since the last rating action in May 2012,
approximately 40.9% of the collateral has been downgraded and 5.1% has
been upgraded. Currently, 83.4% of the portfolio has a Fitch derived
rating below investment grade and 56.1% has a rating in the 'CCC'
category and below, compared to 90.2% and 64.9%, respectively, at the
last rating action. Over this period, the transaction has received $33.4
million in pay downs and experienced $114 million in principal losses.
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 CDOs'. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Based on this analysis, the class A through C notes' breakeven rates are generally consistent with the ratings assigned below.
For the class D through K notes, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, the class D notes have been downgraded to 'CCCsf', indicating that default is possible. Similarly, the class E and F notes have been downgraded and the class G through K notes affirmed at 'Csf', indicating that default is inevitable.
The Stable Outlook on the class A and B notes reflects Fitch's view that the transaction will continue to delever.
RATING SENSITIVITIES
Further negative migration and defaults beyond
those projected by SF PCM as well as increasing concentration in assets
of a weaker credit quality could lead to downgrades.
ARCAP 2003-1 is backed by 27 bonds from 11 commercial mortgage backed securities (CMBS) transactions and is considered a CMBS B-piece resecuritization (also referred to as first loss commercial real estate collateralized debt obligation [CRE CDO]/ReREMIC) as it includes the most junior bonds of CMBS transactions. The transaction closed Aug. 27, 2003.
Fitch has downgraded the following classes:
--$20,500,000 class C notes to 'CCCsf' from 'Bsf';
--$36,100,000
class E notes to 'Csf' from 'CCCsf';
--$13,000,000 class F notes to
'Csf' from 'CCsf'.
Fitch has affirmed the following classes and revised Outlooks as indicated:
--$10,189,650 class A notes at 'BBsf'; Outlook Stable;
--$36,000,000
class B notes at 'Bsf'; Outlook to Stable from Negative;
--$15,400,000
class D notes at 'CCCsf';
--$45,000,000 class G notes at 'Csf';
--$9,000,000
class H notes at 'Csf';
--$28,000,000 class J notes at 'Csf';
--$24,000,000
class K notes at 'Csf'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Structured
Finance Rating Criteria' (June 6, 2012);
--'Global Rating Criteria
for Structured Finance CDOs' (Oct. 3, 2012);
--'Global Criteria for
Cash Flow Analysis in CDOs' (Sept. 13, 2012).
Applicable Criteria and Related Research
Global Structured Finance
Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923
Global
Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=690203
Global
Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518
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