Fitch Upgrades 1 and Affirms 3 Classes of Anthracite CDO II Ltd./Corp.

Fitch Ratings has upgraded one and affirmed three classes issued by Anthracite CDO II Ltd./Corp. (Anthracite CDO II). A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The upgrade is a result of significant amortization of the capital structure. Since the last rating action in May 2013, the transaction has received $45 million in pay downs, which has resulted in the full repayment of the class C notes and $3.5 million in paydowns to the class D notes. Over this same period, approximately 8.3% of the collateral has been downgraded. Currently, 66.3% of the portfolio has a Fitch derived rating below investment grade and 55.7% has a rating in the 'CCC' category and below, compared to 55.8% and 35.1%, respectively, at the last rating action.

This transaction was analyzed 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. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. The class D notes are passing above their current rating category. However, a further upgrade was not warranted given the increased risk for interest shortfall on the notes as a result of increased concentration and adverse selection. The class E notes' breakeven rates are generally consistent with the rating assigned below.

For the class F and G notes, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default, the class F and G notes have been affirmed at 'CCsf', indicating that default is probable.

RATING SENSITIVITIES

The Stable Outlook on the class D and E notes reflects Fitch's view that the transaction will continue to delever. In addition to those sensitivities discussed above, further negative migration and defaults beyond those projected by SF PCM as well as increasing concentration in assets of a weaker credit quality could lead to downgrades.

Anthracite CDO II is a commercial real estate collateralized debt obligation (CRE CDO) that closed on Dec. 10, 2002. The collateral is composed of 17 assets from 14 obligors of which 93.6% are commercial mortgage backed securities (CMBS) and 6.4% commercial real estate loans.

Fitch has taken the following actions:

--$16,447,291 class D notes upgraded to 'BBBsf' from 'Bsf'; Outlook to Stable from Negative;

--$10,390,280 class E notes affirmed at 'Bsf'; Outlook to Stable from Negative;

--$15,334,696 class F notes affirmed at 'CCsf';

--$12,723,005 class G affirmed at 'CCsf'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Rating Criteria for Structured Finance CDOs' (Sept. 12, 2013);

--'Global Structured Finance Rating Criteria' (May 24, 2013).

Applicable Criteria and Related Research:

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718027

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816372

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