NEW YORK - (Business Wire) Fitch Ratings has downgraded eight classes of notes issued by RFC CDO II, Ltd. (RFC II) as a result of continued credit deterioration in the portfolio since Fitch's last rating action in March 2009. Approximately 47.5% of the portfolio has been downgraded since the last review. The details of the rating action follow at the end of this press release. The downgrades to the portfolio have left approximately 51.5% of the portfolio with a Fitch derived rating below investment grade and 31.4% with a rating in the 'CCC' rating category or lower, compared to 23% and 9%, respectively, at last review. Defaulted securities, per the transaction's governing documents, now comprise 13.3% of the portfolio, compared to 2.6% at last review.
This review was conducted 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. 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 Corporate CDOs'. Based on this analysis, the class A-1 notes' breakeven rates are generally consistent with a 'BBB' rating.
The Negative Outlook on the class A-1 notes is due to the concentration of residential mortgage-backed securities (RMBS) in the portfolio, which are expected to continue to face ratings volatility in the next one to two years.
The class A-1 notes are assigned a Loss Severity (LS) rating of 'LS3'. The LS rating indicates a tranche's 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 'Criteria for Structured Finance Loss Severity Ratings'. The LS rating should always be considered in conjunction with the probability of default for tranches.
The class A-2 notes are downgraded to 'CCC' and the class B-1 and B-2 notes are downgraded to 'CC' due to the degree of deterioration within the underlying portfolio. While these classes are still receiving timely interest distributions, Fitch believes that based on the current credit quality of the portfolio, default is a real possibility for the class A-2 notes and highly probable for the class B-1 and B-2 notes at or prior to maturity.
The class C, D, E and F notes are no longer receiving interest distributions due to the failing class A/B overcollateralization test and are not expected to receive any proceeds going forward. Therefore the notes are downgraded to 'C' to indicate Fitch's belief that default is inevitable at or prior to maturity.
RFC II is a structured finance collateralized debt obligation (SF CDO) that closed on March 3, 2005 and is monitored by Castle Peak Capital Advisors, LLC. The portfolio is composed of RMBS (87.5%) and commercial mortgage-backed securities (12.5%).
Fitch has downgraded and assigned LS ratings as indicated:
--$88,895,304 class A-1 notes to 'BBB' from 'AA'; Outlook Negative; assigned 'LS3';
--$39,000,000 class A-2 notes to 'CCC' from 'AA';
--$6,000,000 class B-1 notes to 'CC' from 'BB';
--$6,000,000 class B-2 notes to 'CC' from 'BB';
--$13,500,000 class C notes to 'C' from 'B';
--$3,380,203 class D notes to 'C' from 'CCC';
--$3,380,203 class E notes to 'C' from 'CCC';
--$3,000,000 class F notes to 'C' from 'CC'.
These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009);
--'Global Rating Criteria for Structured Finance CDOs' (Dec. 16, 2008);
--'Global Criteria for Cash Flow Analysis in Corporate CDOs' (April 30, 2008);
--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009).
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Fitch Ratings
Alina Pak, +1-312-368-3184, Chicago
Kevin Kendra, +1-212-908-0760, New York
Media Relations:
Sandro Scenga, +1-212-908-0278, New York
sandro.scenga@fitchratings.com
