NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded one and affirmed four classes of notes issued by RFC CDO I, Ltd. (RFC CDO I) as follows:
--$7,360,687 class A notes affirmed at 'BBBsf'; Outlook Stable;
--$22,500,000 class B1 notes affirmed at 'Bsf'; Outlook Negative;
--$2,000,000 class B2 notes affirmed at 'Bsf'; Outlook Negative;
--$16,200,000 class C notes downgraded to 'Csf' from 'CCsf';
--$7,288,634 class D notes affirmed at 'Csf'.
KEY RATING DRIVERS
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 actions for the notes.
Since the last rating action in February 2012, the credit quality of the collateral has further deteriorated with approximately 25.3% of the portfolio downgraded a weighted average of 3.5 notches. Approximately 89.1% of the portfolio has a Fitch derived rating below investment grade and 61.0% has a rating in the 'CCC' rating category or lower, compared to 82.7% and 57.9%, respectively, at last review.
The class A notes have been affirmed at their current rating of 'BBBsf' to reflect the continued deleveraging of the capital structure offsetting portfolio deterioration. Since the last review, the notes have received approximately $12.2 million, or 62.4% of its previous balance. Although the notes have benefited from excess spread as a result of a failing class C Overcollateralization (OC) test, the amount was relatively small, at $0.5 million over the last four payment dates. The Outlook Stable reflects the cushion available in the cash flow modeling results to mitigate potential further negative migration in the portfolio.
The amortization of the capital structure has also increased the class B-1 and B-2 (together, class B) notes' credit enhancement levels. This increase offset the deterioration in the underlying assets, resulting in an affirmation of the class's rating. Although the current passing levels are slightly lower than those corresponding to a 'Bsf' rating, Fitch expects that the notes' credit enhancement levels will continue to increase with the ongoing deleveraging of the transaction. Based on the most recent pace of paydowns and maturity profile of the remaining portfolio, the class B notes are likely to become the most senior class and start receiving principal payments within the next one to two years. Given these expectations, the 'Bsf' rating remains appropriate for this class. However, Fitch maintains an Outlook Negative on this class due to a high susceptibility to potential further deterioration in the credit quality of the portfolio.
The credit enhancement levels for the class C and D notes are below the expected losses from the distressed and defaulted assets in the portfolio (assets rated 'CCsf' of lower). The class C notes are downgraded to 'Csf' and the class D notes are affirmed at 'Csf', indicating that default is inevitable for both classes at the transaction's maturity.
RFC CDO I is a structured finance collateralized debt obligation (SF CDO) that closed on June 30, 2004. The portfolio of collateral was originally selected by Residential Funding Corporation and is now monitored by Castle Peak Capital Advisors. The portfolio is composed of primarily residential mortgage-backed securities (96.7%) from the 2004 and prior vintages.
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' (Jun. 6, 2012);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 3, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sep. 13, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 29, 2013).
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
Criteria for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535
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