Fitch Upgrades Two Classes of ARCap 2004-1 Resecuritization, Inc.

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded two and affirmed seven classes of ARCap 2004-1 Resecuritization, Inc. (ARCap 2004-1). A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The upgrades are the result of increased credit enhancement (CE) through principal amortization and positive credit migration of the underlying collateral.

Since Fitch's last rating action in August 2015, the class A notes have been repaid in full and the class B notes have received $9.2 million in principal paydowns; total principal paydowns since issuance have been $62.5 million. Over this period, approximately 51.5% of the collateral has been upgraded and only 2.3% has been downgraded. Currently, 78.7% of the portfolio has a Fitch-derived rating below investment grade, and 45.8% has a rating in the 'CCCsf' category and below, compared to 79.8% and 57.6%, respectively, at the last rating action.

As of the July 21, 2016 payment date, the class B through D notes remain current on interest, while the class E through K notes are deferring their interest payments.

This transaction was analyzed under the framework described in Fitch's '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. Based on this analysis, the CE for classes B through D is consistent with the rating actions below and also reflects concerns of obligor concentration and adverse selection as the portfolio continues to amortize.

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

ARCAP 2004-1 is backed by 31 tranches from eight commercial mortgage backed securities (CMBS) transactions and is considered a CMBS B-piece resecuritization (also referred to as first-loss commercial real estate collateralized debt obligation CRE CDO/ReREMIC) as it includes the most junior bonds of CMBS transactions. The transaction closed April 19, 2004.

RATING SENSITIVITIES

The Stable Outlook on the class B and C notes reflects Fitch's view that the notes will continue to delever. In addition to the sensitivities discussed above, additional negative migration and defaults beyond those projected by SF PCM as well as increasing concentration of weaker credit quality assets could lead to downgrades for the more junior classes. If recoveries are better than expected and if there is additional positive credit migration of the underlying portfolio, there could be additional upgrades.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has upgraded the following classes:

--$25,185,064 class B notes to 'BBBsf' from 'BBsf'; Outlook Stable;

--$26,500,000 class C notes to 'Bsf' from 'CCCsf'; Outlook Stable assigned.

Fitch has affirmed the following classes:

--$8,500,000 class D notes at 'CCCsf';

--$30,700,000 class E notes at 'CCsf';

--$13,600,000 class F notes at 'CCsf;

--$36,000,000 class G notes at 'Csf';

--$13,000,000 class H notes at 'Csf';

--$31,500,000 class J notes at 'Csf';

--$20,500,000 class K notes at 'Csf'.

Fitch does not rate the preference shares.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

Global Surveillance Criteria for Structured Finance CDOs (pub. 05 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883201

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009729

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009729

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160729005801/en/

Fitch Ratings
Primary Analyst
Martin Nunnally
Associate Director
+1-212-908-0871
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Christopher Bushart
Senior Director
+1-212-908-0606
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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