2008-08-04 23:55:02 -
- Fitch Ratings has downgraded four and affirmed one class of notes from Solstice ABS CDO III, Ltd. (Solstice III). The following rating actions are effective immediately:
--$42,891,322 class A-1 affirmed at 'AAA';
--$107,500,000 class A-2 downgraded to 'BBB-' from 'A-' and removed from Rating Watch Negative;
--$47,500,000 class B downgraded to 'B-' from 'BBB-' and removed
from Rating Watch Negative;
--$19,325,809 class C-1 downgraded to 'CC' from 'CCC+' and removed from Rating Watch Negative;
--$5,109,160 class C-2 downgraded to 'CC' from 'CCC+' and removed from Rating Watch Negative.
Solstice III is a cash flow structured finance (SF) collateralized debt obligation (CDO) which closed Nov. 13, 2003 and is managed by Rabobank International. Solstice III's portfolio is comprised of subprime residential mortgage backed securities (RMBS) (52.3%), SF CDOs (12.3%), Non-SF CDOs (22.8%), prime RMBS (4.8%), Alternative-A (Alt-A) RMBS (2.2%), and other asset-backed securities (5.6%). Subprime RMBS of the pre-2005, 2005, and 2006 vintages account for approximately 39.7%, 6.9%, and 5.7% of the portfolio, respectively. SF CDOs of the pre-2005 and 2005 vintages account for approximately 11.5% and 0.8% of the portfolio, respectively.
Fitch's rating actions reflect the collateral deterioration within the portfolio, specifically subprime RMBS and SF CDOs with underlying exposure to subprime RMBS. At the time of the last review conducted in November 2007, approximately 22.8% of the portfolio was rated below investment grade. The portion of the portfolio rated below investment grade is now 37.3% while 13.8% of the portfolio is currently on Rating Watch Negative.
The collateral deterioration has caused the class A/B and class C Overcollateralization tests to fall below the 105.0% and 101.5% triggers, and they are currently failing at 101.1% and 89.9%, respectively. As a result of the failure of these tests, proceeds that would otherwise be used to pay class C-1 and C-2 interest are being used to delever the class A-1 notes. The class A-1 notes have paid down approximately 87.6% since closing. Class A-2 and B also continue to pay interest. Consistent with the current ratings, Fitch expects the class C-1 and C-2 notes to receive only capitalized interest payments in the future with no ultimate principal recovery.
Fitch has affirmed the class A-1 notes as they continue to delever. Additionally, 39.7% of the portfolio is Subprime RMBS of the pre-2005 vintages, which have outperformed later vintage RMBS.
The classes are removed from Rating Watch as Fitch believes further negative migration in the portfolio will have a lesser impact on these classes. Additionally, Fitch is reviewing its SF CDO approach and will comment separately on any changes and potential rating impact at a later date.
The rating of the class A-1, A-2 and B notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class C-1 and C-2 notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date.
Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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
Kevin Kendra, +1-212-908-0760 (New York)
Brian Vorderbrueggen, +1-212-908-9102 (New York)
Alina Pak, CFA, +1-312-368-3184 (Chicago)
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
