NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has upgraded one and affirmed two classes of notes issued by Arroyo I CDO, Ltd. (Arroyo I). The rating actions are as follows:
--$15,579,181 class B notes upgraded to 'Asf' from 'BBBsf', Outlook remains Stable;
--$10,673,643 class C-1 notes affirmed at 'CCCsf';
--$18,883,867 class C-2 notes affirmed at 'CCCsf'.
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 in its analysis, as described below.
KEY RATING DRIVERS
The upgrade and affirmations are based on the stable performance of the portfolio combined with the continued amortization of the notes increasing credit enhancement (CE) levels to all the classes.
Since Fitch's last rating action in March 2012, the credit quality of the collateral has remained stable, with approximately 3.6% of the portfolio downgraded a weighted average of 1.6 notches and 19.1% upgraded a weighted average of 1.3 notches. Approximately 61.6% of the current portfolio has a Fitch derived rating below investment grade and 36.7% has a rating in the 'CCCsf' rating category or lower, compared to 64.2% and 34.4%, respectively, at last review.
The class B notes have received approximately $14.1 million in principal repayment, or 47.5% of its previous balance, since the last review, leaving 40.2% of the original balance outstanding. The upgrade to the class B notes is in line with the breakeven levels from the cash flow model.
The class C notes are currently receiving their periodic interest due; however, they still have $673,643 of deferred interest outstanding. Although the cash flow model indicates the class C notes pass rating levels higher than 'CCCsf' in all scenarios, they still rely on the performance of defaulted assets, which currently represent 36.3% of the portfolio.
Further negative migration and defaults beyond those projected in the SF PCM as well as increasing concentration in assets of a weaker credit quality could lead to future downgrades. Likewise, a buildup of credit enhancement could lead to future upgrades.
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.
The information used to assess these ratings was sourced from the issuer, periodic trustee reports, note valuation reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Jun. 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' (Jan. 25, 2013).
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:
Cristina Feracota, +1-312-606-2300
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Alina Pak, CFA, +1-312-368-3184
Sandro Scenga, New York, +1 212-908-0278