Fitch Ratings has upgraded two classes and affirmed seven classes issued by LNR CDO 2002-1 Ltd./Corp (LNR 2002-1). The upgrades are a result of increased credit enhancement to the notes from principal paydowns. A complete list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
Since the last rating action in February 2014, approximately 12.94% of the collateral has been upgraded. Currently, 74.8% of the portfolio has a Fitch derived rating below investment grade with 67.5% of the portfolio having a rating in the 'CCC' category and below, compared to 78.4% and 72.9%, respectively, at the last rating action. Over this period, the transaction has received $37.2 million which has resulted in the full repayment of the class B and C notes and the class A repack of the class B notes (R.E. Repack Trust 2002-1).
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. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Additionally, a deterministic analysis was performed where the recovery estimate on the distressed collateral was modeled in accordance with the principal waterfall. An asset by asset analysis was then performed for the remaining assets to determine the collateral coverage for the remaining liabilities. The below ratings reflect these results as well as the risk of adverse selection as the portfolio continues to amortize.
RATING SENSITIVITIES
For the class D through H notes, Fitch analyzed each class' sensitivity to the default of the distressed assets ('CCC' and below). The class D notes have been upgraded to 'CCCsf', given their senior position in the waterfall and expected recovery as the portfolio continues to amortize. Given the high probability of default of the underlying assets and the expected limited recovery prospects upon default (but with increasing credit enhancement due to paydown), the upgrade is limited to 'CCCsf', indicating that default is possible. The class E through H notes are undercollateralized and have been affirmed at 'Csf', indicating default is inevitable.
LNR 2002-1 is backed by 29 tranches from 17 commercial mortgage backed security (CMBS) transactions and is considered a CMBS B-piece resecuritization (also referred to as first loss commercial real estate collateralized debt obligation [CRE CDO]) as it includes the most junior bonds of CMBS transactions. The transaction closed in July 2002.
Fitch has upgraded the following classes as indicated:
--$36,518,326 class D-FX notes to 'CCCsf' from 'CCsf';
--$40,929,630 class D-FL notes to 'CCCsf' from 'CCsf'.
Fitch has affirmed the following classes as indicated:
--$22,000,000 class E-FX notes at 'Csf';
--$33,059,000 class E-FXD notes at 'Csf';
--$21,000,000 class E-FL notes at 'Csf';
--$25,000,000 class F-FX notes at 'Csf';
--$27,041,000 class F-FL notes at 'Csf';
--$40,032,000 class G notes at 'Csf';
--$54,042,000 class H notes at 'Csf'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Global Rating Criteria for Structured Finance CDOs' (July 16, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978763
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