Fitch Upgrades 2 and Affirms 2 Classes of C-BASS CBO VI, Ltd
Fitch Ratings has upgraded two and affirmed two classes of notes issued by C-BASS CBO VI, Ltd. (C-BASS VI) as follows:
--$782,797 class B notes upgraded to 'AAAsf' from 'Asf'; Outlook Stable;
--$5,000,000 class C notes upgraded to 'Asf' from 'BBBsf'; Outlook revised to Stable from Negative;
--$21,874,396 class D notes affirmed at 'CCsf'.
--$3,000,000 class E notes affirmed at 'Csf'.
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 to conclude the rating actions for the rated notes.
Since Fitch's last rating action in November 2011, the credit quality of the collateral has deteriorated with approximately 37.4% of the portfolio being downgraded a weighted average of 3.9 notches. Currently, 81.9% of the portfolio has a Fitch-derived rating below investment grade and 71.7% is rated in the 'CCC' category or lower, compared to 74.8% and 52%, respectively, at last rating action.
Over this time, the class A notes paid-in-full and the class B notes received approximately $5.4 million or 87.3% of their prior review balance in paydowns. The class B notes current balance of $782,797 is fully covered by the proceeds available in the principal collection account and is expected to be paid in full at the next payment date in November. The breakeven rates in Fitch's cash flow model for the notes are generally consistent with the rating assigned above. Fitch maintains its Stable Outlook on the class B notes.
The upgrade for the class C notes is attributable to the increase in credit enhancement resulting from the amortization of the class A and B notes. This has more than offset the deterioration of the underlying portfolio over this past year. Although the notes are passing at ratings higher than 'Asf' based on the cash flow modeling results, potential concentration risk and adverse selection remain a concern as the portfolio continues to amortize.
The Outlook on the class C notes is revised to Stable from Negative, to reflect Fitch's view that the performance of the notes will remain stable as the class B notes pay in full at the next payment date, and the class C notes begin to amortize in succession.
Breakeven levels for the class D and E notes were below SF PCM's 'CCC' default level, the lowest level of defaults projected by SF PCM. The class D notes began to receive their full interest distribution upon expiration of the swap in May 2011; however, the notes still have roughly $259,730 of deferred interest still outstanding. Excess spread is currently used to cure the failing class D coverage test, the step above repayment of deferred interest for class D in the interest waterfall. The class E notes are currently not receiving any interest distributions and are not expected to receive interest distributions in the future. Default remains inevitable for the class E notes.
C-BASS VI is cash structured finance (SF) collateralized debt obligation (CDO) that closed on April 15, 2003 and is monitored by NIC Management LLC. As of the Sept. 30, 2012 trustee report, the portfolio is comprised of 86.6% residential mortgage backed securities (RMBS), 11.1% Structured Finance CDOs (SF CDOs) and 2.3% commercial asset backed securities (ABS), from the 2003 and earlier vintage transactions.
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' (June 6, 2012);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 3, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 20, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Structured Finance CDOs
Global Criteria for Cash Flow Analysis in CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions
Primary Surveillance Analyst:
Felix Chen, +1-212-908-9154
One State Street Plaza
New York, NY 10004
Alina Pak, CFA, +1-312-368-3184
Sandro Scenga, +1-212-908-0278
New York, Media Relations