2008-07-11 23:32:06 -
- Fitch Ratings has downgraded five classes of notes issued by Neptune CDO II, Ltd. and Neptune CDO II (Delaware), LLC (collectively, Neptune II). Fitch has also removed all five classes of notes from Rating Watch Negative. The following rating actions are effective immediately:
--$168,720,346 class A-1 to 'B' from 'A';
--$52,000,000 class A-2 to 'CC' from 'BBB';
--$18,000,000 class B to 'CC' from 'BB';
--$6,167,895 class C to 'C' from 'B';
--$11,315,480 class D to 'C' from 'CCC'.
Fitch originally placed all classes on Rating Watch Negative on Feb. 27, 2008.
Neptune II is a cash flow structured finance (SF) collateralized debt obligation (CDO) that closed on July 26, 2005 and is managed by Chotin Fund Management Corporation, formerly known as Fund America Management Corporation. The portfolio is comprised primarily of U.S. subprime residential mortgage-backed securities (RMBS) (72.7%), Alternative-A (Alt-A) RMBS (7.8%), Prime RMBS (10.5%) and SF CDOs (4.2%). Subprime RMBS bonds of the 2005, 2006 and 2007 vintages account for approximately 65.2% of the portfolio.
Fitch's rating actions reflect the significant collateral deterioration within the portfolio, specifically subprime RMBS, Alt-A RMBS and SF CDOs with underlying exposure to subprime RMBS. Since November 2007, approximately 62.8% of the portfolio has been downgraded, with 8.9% of the portfolio currently on Rating Watch Negative. This credit deterioration includes 61.5% of the portfolio that now carries a rating below the rating Fitch assumed in the November 2007 review. Assets rated below investment grade currently represent 61.8% of the portfolio, and 29.7% of the portfolio is now rated 'CCC+' or below.
The collateral deterioration has caused each of the overcollateralization (OC) tests to fall below 100% and fail their respective triggers. As of the trustee report dated May 30, 2008, the class A/B OC ratio was 89.5%, the class C OC ratio was 87.2% and the class D OC ratio was 83.4%. Due to these OC test failures, cash flows have been diverted to pay down the class A-1 notes, and payment of interest to the class C and class D notes has been made in kind by writing up the principal balance of each class by the amount of interest owed.
The ratings on the class A-1, A-2 and B notes address the timely receipt of scheduled interest payments and the ultimate receipt of principal as per the transaction's governing documents. The ratings on classes C and D address the ultimate receipt of interest payments and ultimate receipt of principal as per the transaction's governing documents. The ratings are based upon the capital structure of the transaction, the quality of the collateral, and the protections incorporated within the structure.
Fitch will continue to monitor and review this transaction for future rating adjustments. Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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
Kevin Kendra, 212-908-0760, New York
Brian Vorderbrueggen, 212-908-9102, New York
Alina Pak, 312-368-3184, Chicago
or
Media Relations:
Sandro Scenga, 212-908-0278, New York
