NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed nine classes issued by N-Star Real Estate CDO II Ltd. (N-Star CDO II) as a result of paydowns to the senior notes offsetting the deterioration of the underlying collateral. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS:
Since the last rating action in February 2012, approximately 24.1% of the collateral has been downgraded and 3.8% has been upgraded. Currently, 56% of the portfolio has a Fitch derived rating below investment grade and 32.4% has a rating in the 'CCC' category and below, compared to 52.6% and 28.1%, respectively, at the last rating action. Over this period, the class A-1 notes have received $34.3 million for a total of $229.4 million in pay downs since issuance.
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-1 through C-1 notes' breakeven rates are generally consistent with the ratings assigned below.
For the class C-2 and D 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 C-2 notes have been affirmed at 'CCsf', indicating that default is probable. Similarly, the class D notes have been affirmed at 'Csf', indicating that default is inevitable.
The Stable Outlook on the class A-1 and A-2 reflects Fitch's view that the transaction will continue to delever. The Negative Outlook on the class B notes reflects the risk of adverse selection as the portfolio continues to amortize.
N-Star CDO II is a cash flow collateralized debt obligation (CDO), which closed July 1, 2004. The collateral is composed of 71.2% commercial mortgage backed securities (CMBS), 15.1% of SF CDOs, and 13.7% real estate investment trusts (REIT). The transaction is collateralized by 44 assets from 41 obligors.
Fitch has affirmed the following classes as indicated:
--$6,555,928 class A-1 notes at 'AAAsf'; Outlook Stable;
--$42,000,000 class A-2A notes at 'BBBsf'; Outlook to Stable from Negative;
--$15,000,000 class A-2B notes at 'BBBsf'; Outlook to Stable from Negative;
--$12,000,000 class B-1 notes at 'BBBsf'; Outlook Negative;
--$14,000,000 class B-2 notes at 'Bsf'; Outlook Negative;
--$24,047,899 class C-1 notes at 'CCCsf';
--$6,100,215 class C-2A notes at 'CCsf';
--$16,665,764 class C-2B notes at 'CCsf';
--$16,962,076 class D 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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