NEW YORK--(Business Wire)--
Fitch Ratings has downgraded three classes and affirmed two classes of notes
issued by Northlake CDO I, Ltd./Corp. (Northlake I) as a result of continued
credit deterioration in the portfolio since Fitch's last rating action in
September 2008. Approximately 52.8% of the portfolio has been downgraded since
the last review. The details of the rating action follow at the end of this
press release.
The downgrades to the portfolio have left approximately 56.7% of the portfolio
with a Fitch derived rating below investment grade and 40.5% with a rating in
the 'CCC' rating category or lower, compared to 39.7% and 27.1%, respectively at
last review. Defaulted securities, as defined in the transaction's governing
documents, now comprise 27.5% of the portfolio, compared to 13.7% at last
review.
This review was conducted 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 considered the PCM rating loss rates and the extent of principal proceeds
that will be needed to pay accrued interest to the class I-MM, class I-A and
class II notes over the life of the transaction to determine an appropriate
rating for the class A-IMM notes. In Fitch's opinion, the class A-1MM notes
would still have a limited margin of safety from default based on the
portfolio's credit quality; however, the amount of credit enhancement erosion
expected from principal proceeds going toward accrued interest payments is
significant enough to make default a real possibility. Therefore, the class
A-1MM notes are downgraded to 'CCC'.
The short-term rating on the class I-MM notes is withdrawn, because the put
agreement between Northlake I and AIG Financial Products Corp. (AIG) has been
terminated. The class I-MM notes could not be successfully remarketed on March
6, 2009, and AIG elected to take the term bonds purchase option.
Due to the significant collateral deterioration, all PCM rating loss rates
exceed the credit enhancement available to class I-A, class II, class III and
the preferred shares. For these classes, Fitch considered future payment
expectations to determine their appropriate ratings.
The class I-A and class II notes are downgraded to 'C' because default appears
inevitable for both classes at or prior to maturity. Both classes are still
receiving timely interest distributions; however, based on the credit quality of
the portfolio and the extent of principal leaking to pay interest, the class I-A
notes are not expected to receive full principal repayment by maturity, and the
class II notes are not expected to receive any principal repayment.
The failing senior coverage tests are unlikely to cure in the future, therefore
the class III notes and preferred shares are not expected to receive any
interest or principal distributions going forward and are affirmed at 'C'.
Northlake I is a structured finance collateralized debt obligation (SF CDO) that
closed on Feb. 26, 2003 and is managed by Deerfield Capital Management LLC. The
portfolio is composed of residential mortgage-backed securities (52.2%),
commercial mortgage-backed securities (28.9%), asset-backed securities (11.3%),
corporate CDOs (4%), and SF CDOs (3.6%).
Fitch has taken various actions on the following classes of Northlake CDO I,
Ltd./Corp. as indicated:
--$98,587,200 class I-MM notes downgraded to 'CCC/WD' from 'BBB/F2';
--$49,798,697 class I-A notes downgraded to 'C' from 'CCC';
--$45,000,000 class II notes downgraded to 'C' from 'CC';
--$14,009,139 class III notes affirmed at 'C';
--$14,000,000 preferred shares affirmed at 'C'; 'DR6' withdrawn.
These rating actions reflect the application of Fitch's current criteria which
are available at 'www.fitchratings.com' and specifically include the following
reports:
--'Global Structured Finance Rating Criteria' (Sept. 30, 2009);
--'Global Rating Criteria for Structured Finance CDOs' (Dec. 16, 2008).
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE.
Fitch Ratings
Alina Pak, CFA, 312-368-3184, Chicago
Kevin Kendra, 212-908-0760, New York
or
Media Relations:
Sandro Scenga, 212-908-0278, New York
Email: sandro.scenga@fitchratings.com
Copyright Business Wire 2009
