NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed two classes of notes issued by C-BASS CBO VII, Ltd./Corp. (C-BASS VII) as follows:
--$10,598,240 class C notes at 'BBBsf'; Outlook Stable;
--$14,575,580 class D notes at 'CCCsf'.
This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Structured Finance Portfolio Credit Model (SF PCM) for projecting future default levels for the underlying portfolio. These default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. Fitch also considered additional qualitative factors into its analysis, as described below, to conclude the rating affirmations for the rated notes.
Since Fitch's last rating action in June 2012, the credit quality of the collateral has deteriorated with approximately 36% of the portfolio downgraded a weighted average of 4.4 notches. Approximately 83.7% of the portfolio has a Fitch derived rating below investment grade and 65.4% rated in the 'CCC' category or lower, compared to 71% and 57.5%, respectively, at last review.
KEY RATING DRIVERS
The affirmation of the class C notes is due to the amortization of the notes increasing credit enhancement that offsets the deterioration of the underlying portfolio. Since the last review, the notes have received approximately $9.4 million of principal repayment, or 47% of its previous outstanding balance. Although the notes are currently passing at higher ratings than 'BBBsf' in cash flow modeling results, concentration risk remains a concern as the portfolio continues to amortize. Only 34.6% of the portfolio is considered performing (rated above 'CCCsf'), with the five largest assets representing more than 30.9% of the performing portfolio.
The Outlook remains Stable for the class C notes due to the expected stable future performance of the class, with the cash flow modeling results displaying a cushion above its current rating in all scenarios. Fitch does not assign Rating Outlooks to classes rated 'CCC' or below.
The class D notes remain supported by 'CCC' assets and will not begin receiving principal paydowns until the class C notes are fully repaid. The notes are likely to remain outstanding beyond a two year horizon, exposing them to potential future negative migration in the portfolio.
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.
C-BASS VII is a cash flow structured finance collateralized debt obligation that closed on July 30, 2003. The portfolio is currently monitored by NIC Management LLC, an affiliate of Newcastle Investment Corp. The portfolio is comprised of 73.3% residential mortgage-backed securities, 18.6% commercial and consumer asset-backed securities, and 8.1% SF CDOs from 1998 through 2003 vintage transactions.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from the issuer, periodic trustee reports, note valuation reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 3, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
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
Criteria for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792640
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