2009-05-07 00:17:01 -
Fitch Ratings downgrades three and affirms three classes of notes issued by Fort Sheridan ABS CDO, Ltd. (Fort Sheridan), as follows.
--$716,392,803 class A-1 notes downgraded to 'CCC from 'BB';
--$34,589,996 class A-2 notes downgraded to 'CC' from 'B';
--$44,966,995 class B notes downgraded to 'CC' from 'CCC';
--$11,742,516 class C-1 notes affirmed at 'C';
--$1,832,651 class
C-2 notes affirmed at 'C';
--$4,310,151 class C-3 notes affirmed at 'C'.
Fitch also removes the class A-1 and A-2 notes from Rating Watch Negative.
The downgrades are the result of the continued credit deterioration of the portfolio, particularly the weak performance of the U.S. subprime residential mortgage-backed securities (RMBS), Alternative-A (Alt-A) RMBS, and structured finance (SF) collateralized debt obligations (CDOs) with underlying exposure to those assets.
Since Fitch's last rating action in May 2008, the portfolio experienced significant negative credit migration with 75.7% of the portfolio downgraded a weighted average of 8.4 notches. Currently, assets rated below investment grade comprise 51.4% of the total portfolio, of which approximately 37% is rated 'CCC' or lower. Additionally, as of the March 31, 2009 trustee report, approximately $193.2 million, or 24.3%, of the current portfolio is now considered to be defaulted, as per the transaction's governing documents.
As a result of the continued deterioration within the portfolio, particularly the increase in defaulted assets, the class A/B overcollateralization (OC) ratio fell below 100%, to its current level of 67.6% failing its covenant of 101.8%. Since April 2008, when the trigger was first breached, the transaction has redirected all interest proceeds that would otherwise be available to pay interest to the subordinated notes, to delever the class A-1 notes until the test is passed or the notes are paid in full. Approximately 18.6%, or $163.6 million, of the class A-1 notes have amortized since closing in 2005.
Fitch expects the class A-1 notes to continue receiving timely interest payments; however, based on the performance of the portfolio there is a high likelihood that the principal of the notes will not be fully repaid by the stated maturity in November 2041.
The class A-2 and class B notes continue to receive their accrued quarterly interest payments and are expected to do so unless there are not enough proceeds available for distribution and the transaction enters an even of default. If an event of default occurs, the class A-1 notes could vote to accelerate the maturity of the notes whereby all distribution proceeds would go to class A-1 until they are paid in full.
On the Jan. 30, 2009 payment date, the class A-1 interest distribution was made in part from principal proceeds, as were the entire class A-2 and class B interest distributions. The credit enhancement levels for the class A-2 and B notes continue to deteriorate from both principal proceeds used to pay interest as well as further defaults of underlying assets. The downgrades to 'CC' reflect Fitch's expectation of zero principal recovery.
The class C-1, C-2, and C-3 notes have and will continue to pay-in-kind (PIK), whereby the principal balances of the notes are written up by the amount of interest missed due to the class A/B OC test failure. Fitch does not expect any future interest or principal payments to any of the class C notes.
Fort Sheridan is a cash flow CDO, which closed on March 30, 2005 and is managed by Vanderbilt Capital Advisors LLC. The transaction's portfolio comprises of U.S. RMBS and SF CDOs, primarily of the 2005, 2006, and 2007 vintages. Presently 41.2% of the portfolio is exposed to. U.S.
subprime RMBS, 24.1% is exposed to U.S. SF CDOs, and 20.1% of the portfolio is exposed to Alt-A RMBS bonds. The remaining 14.2% consists of prime RMBS (14.1%) and one commercial mortgage-backed security (CMBS).
These rating actions resolve the 'Under Analysis' status issued on Oct.
14, 2008 following Fitch's announcement of its proposed criteria revision for analyzing SF CDOs. The revised criteria report, 'Global Rating Criteria for Structured Finance CDOs' was published in its final form on Dec. 16, 2008 along with an updated version of the Fitch Portfolio Credit Model (PCM) that includes additional functionality for analyzing SF CDOs. As part of this review, Fitch makes standard adjustments for any names on Rating Watch Negative or with a Negative Outlook, downgrading such ratings for default analysis purposes by three and one notches, respectively.
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 :
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Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com :
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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, New YorkBrian Vorderbrueggen, 212-908-9102Kevin
Kendra, 212-908-0760orMedia Relations:Sandro Scenga,
212-908-0278Email:
sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com
