Fitch Downgrades 3 & Affirms 2 Classes from Genesis CLO 2007-1 Ltd./Corp.

2008-10-02 04:31:02 -

- Fitch Ratings downgrades three classes and affirms two classes of notes issued by Genesis CLO 2007-1 Ltd./Corp. (Genesis). The following rating actions are effective immediately:

--$1,389,647,283 class A senior secured floating rate notes affirmed at 'AAA';

--$110,000,000 class B senior secured floating rate notes affirmed at 'AA';

--$70,000,000 class C senior secured deferrable floating rate notes downgraded to 'A-' from 'A';

--$50,000,000 class D senior secured deferrable floating rate notes downgraded to 'BB' from 'BBB';

--$40,000,000 class E senior secured deferrable floating rate notes downgraded to 'B' from 'BB'.

The rating action reflects Fitch's view on the credit risk of the rated notes following the release of its new Corporate CDO rating Criteria.

Genesis is a static cash flow transaction collateralized by a portfolio of leveraged loans. The transaction closed on Oct. 3, 2007. It was arranged by Deutsche Bank AG and Ore Hill Partners, LLC is the Collateral Manager. The portfolio is comprised of 96.7% senior secured loans and 2.9% second lien loans. In addition, the portfolio contains 14.1% covenant light loans. The three largest industry concentrations in the Genesis portfolio are Broadcasting and Media (11.9%), Healthcare (8.5%), and Food, Beverage & Tobacco (7.5%). The five largest obligors represent approximately 7.2% of the portfolio and the single largest obligor is approximately 1.8% of the portfolio.

The rating actions are based on the negative rating migration of the portfolio since the closing date. As of the Aug. 1, 2008 trustee report, the Fitch Weighted Average Rating Factor (WARF) is 'B/B-'. Approximately 85.8% of the portfolio is publicly rated by at least one rating agency, with 8.6% of the assets currently on Rating Watch Negative by at least one rating agency and an additional 22.2% have a Negative Outlook. Approximately 10.7% of the portfolio has been shadow rated by Fitch. In addition, 7.3% of the portfolio is explicitly rated 'CCC+' or below and 0.8% of the portfolio is defaulted.

The transaction includes overcollateralization and interest coverage tests for each class and they are currently passing their minimum test levels. Failure of any coverage test will redeem the notes in sequential order starting with the class A notes. Since the closing date, the class A notes have received $180.4 million in principal, or approximately 11.5% of the original notional amount, from repayments on the underlying assets.

The ratings of the class A and B notes address the likelihood that investors will receive full and timely payments of interest, as per the transaction's governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class C, D and E notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the transaction's governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date.

Fitch released updated criteria on April 30, 2008 for Corporate CDOs and, at that time, noted it would be reviewing its ratings accordingly to establish consistency for existing and new transactions. As part of this review, Fitch makes standard adjustments for any names on Rating Watch Negative or Outlook Negative, reducing such ratings for default analysis purpose by two and one notch, respectively. For more information, see Global Rating Criteria for Corporate CDOs, dated April 30 2008 and available on the Fitch website at www.fitchratings.com.

Included in this review, Fitch conducted cash flow modeling to measure the breakeven default rates relative to the cumulative default rates associated with the current ratings of the note liabilities. The cash flow model incorporates the transaction's structural features, as well as Fitch's updated Corporate CDO rating criteria.

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.

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