NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on four classes of notes issued by Diversified Asset Securitization Holdings II, L.P./Corp. (DASH II). The affirmations are as follows:
-- $16,221,219 class A-1 notes at 'BBsf/LS3'; Outlook Negative;
-- $102,734,387 class A-1L notes at 'BBsf/LS3'; Outlook Negative;
-- $50,000,000 class A-2L notes at 'CCsf';
-- $37,000,000 class B-1 notes at 'Csf'.
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', for the class A-1 and class A-1L notes. Fitch also considered additional qualitative factors into its analysis, as described below, to conclude the rating affirmations for the rated notes.
Since the last rating action in February 2010, the credit quality of the collateral has declined with approximately 10% of the portfolio downgraded a weighted average of 2.9 notches. Approximately 51.4% of the portfolio has a Fitch derived rating below investment grade and 42.1% has a rating in the 'CCC' rating category or lower, compared to 45.3% and 35.5% respectively, at last review.
The affirmations of the notes is due to principal repayment of the class A-1 and A-1L notes offsetting the effects of deterioration in the portfolio. In addition to downgrades in the portfolio, approximately $10.5 million of collateral was written down since the last review. With the help of excess spread due to the class B overcollateralization (OC) ratio failing its covenant, approximately 16.9%, or $24.2 million, of the senior notes' balance has amortized, increasing their credit enhancement levels.
Fitch maintains a Negative Outlook on the class A-1 and A-1L notes due to the potential for ratings volatility in the underlying portfolio. Additionally, the classes show sensitivity to rising interest rate stresses. Fitch does not maintain outlooks for tranches rated 'CCC' and below.
The Loss Severity (LS) rating of 'LS3' for the class A-1 and A-1L notes indicates the tranches' potential loss severity given default, as evidenced by the ratio of tranche size to the base-case loss expectation for the collateral, as explained in Fitch's 'Criteria for Structured Finance Loss Severity Ratings'. The LS rating should always be considered in conjunction with the notes' long-term credit rating. Fitch does not assign LS ratings to tranches rated 'CCC' and below.
Breakeven levels for the class A-2L and class B-1 notes were below SF PCM's 'CCC' default level, the lowest level of defaults projected by SF PCM. For these classes, Fitch compared the class's respective credit enhancement (CE) levels to expected losses from the distressed and defaulted assets in the portfolio (rated 'CCsf' or lower). The CE level of the class A-2L notes is comparable to the expected loss percentage of the portfolio when taking into account the benefit of excess spread in the transaction, therefore the class is affirmed at 'CCsf', indicating default is probable at or prior to maturity. The expected loss significantly exceeds the class B-1 CE level, and therefore the class is affirmed at 'Csf', indicating default appears inevitable.
The class A-2L notes are rated to the timely receipt of interest and continue to receive their accrued interest each payment period. The class B-1 notes are rated to the ultimate receipt of interest and are also currently receiving accrued interest distributions. The class A OC ratio is reported as 110.7% in the Feb. 2, 2011 trustee report, which is approaching its covenant of 110%. If the class A OC ratio declines below 110%, the class B-1 notes will be cut off from payments and proceeds will be diverted to redeem class A-1 and A-1L instead.
DASH II is a cash flow structured finance collateralized debt obligation (SF CDO) that closed on Sept. 13, 2000. The portfolio is currently monitored by Western Asset Management Co., who became the substitute asset manager for Asset Allocation & Management, LLC in November 2002 and actively managed the portfolio until DASH II exited its reinvestment period in 2005. The portfolio is comprised of 46.7% residential mortgage-backed securities, 31.4% commercial and consumer asset-backed securities, and 21.9% commercial mortgage-backed securities from 1995 through 2005 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' (Aug. 16, 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);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Feb. 17, 2010).
Applicable Criteria and Related Research:
Criteria for Interest Rate Stresses in Structured Finance Transactions (Global SF)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=500306
Criteria for Structured Finance Loss Severity Ratings
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=426038
Global Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=557485
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564895
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326
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