Fitch Ratings has downgraded nine and affirmed 11 classes issued by COMM 2004-RS1 Ltd./Corp. (COMM 2004-RS1). The affirmations are a result of improved credit enhancement to the notes due to deleveraging of the capital structure. The downgrades are a result of increased interest shortfalls on the underlying collateral. A complete list of rating actions follows at the end of this press release.
Since Fitch's last rating action in June 2011, the credit quality of the portfolio has declined slightly to a current weighted average Fitch derived rating of 'BB', down from 'BB+/BB' at last review. As of the May 31, 2012 trustee report, 15.8% of the portfolio is currently experiencing interest shortfalls, compared to 8% at the last review. The portfolio's concentration risk is high with only 21 assets from 12 obligors.
One obligor, Marquee 2004-1, comprises 68% of the portfolio. Marquee 2004-1 is a repack of one mezzanine class of CMCMT 1998-C1, a commercial mortgage-backed securities (CMBS) resecuritization. The current weighted average Fitch derived rating of the underlying bonds in CMCMT 1998-C1 has remained the same since last rating action at 'B-/CCC+'. However, the Marquee notes within COMM 2004-RS1 have begun to amortize.
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 Rating Loss Rates (RLR) were then compared to the credit enhancement of the classes. Fitch also analyzed the structure's sensitivity to the assets that are distressed, experiencing interest shortfalls, and those with near-term maturities. Given the significant concentration of Marquee 2004-1 within the portfolio, Fitch analyzed the Marquee 2004-1 classes based on an analysis of the CMCMT 1998-C1 portfolio using the PCM. Based on this analysis, the credit enhancement for the class A notes exceeds the rating loss rate for their current rating. However, an upgrade is not warranted given the concentration risk with one obligor representing 68% of the underlying collateral. The passing ratings on the class B notes are generally consistent with the ratings assigned below.
For the class C through N notes, Fitch analyzed the 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 C notes have been affirmed at 'CCCsf', indicating that default is possible. Similarly, the class D through K notes have been affirmed at 'CCsf', indicating that default is probable, and the class L through N notes downgraded to 'Csf', indicating that default is inevitable.
The Negative Outlook on the class A and B notes reflects their vulnerability to negative migration and that increasing concentration risk and potential adverse selection remain a concern as the portfolio continues to amortize. Fitch does not assign Outlooks to classes rated 'CCC' and below.
COMM 2004-RS1 is a CMBS mezzanine resecuritization that closed in November 2004. Currently, 68% of the portfolio is composed of six classes of Marquee 2004-1 and the remaining 22% is CMBS collateral from the 2001 and 2004 vintages.
Fitch has affirmed the following classes as indicated:
--$115,953,469 class A at 'BBBsf'; Outlook Negative;
--$39,020,000 class B-1 at 'Bsf'; Outlook Negative;
--$41,298,000 class B-2 at 'Bsf'; Outlook Negative;
--$13,386,000 class C at 'CCCsf';
--$12,955,000 class D at 'CCsf';
--$4,318,000 class E at 'CCsf';
--$3,023,000 class F at 'CCsf';
--$2,056,000 class G at 'CCsf';
--$2,176,000 class H at 'CCsf';
--$725,000 class J at 'CCsf';
--$1,313,000 class K at 'CCsf'.
Fitch has downgraded the following classes as indicated:
--$1,520,000 class L to 'Csf' from 'CCsf';
--$622,000 class M to 'Csf' from 'CCsf';
--$2,384,528 class N to 'Csf' from 'CCsf'.
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. 6, 2011).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Structured Finance CDOs