Fitch Upgrades ARCap 2004-1 Resecuritization, Inc.

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has upgraded two classes and affirmed eight classes issued by ARCap 2004-1 Resecuritization, Inc. (ARCap 2004-1).

KEY RATING DRIVERS

The upgrades were a result of improved performance of the underlying collateral and increased credit enhancement through principal amortization. A complete list of rating actions follows at the end of this release.

Since the last rating action in August 2014, the credit quality of the portfolio has improved with approximately 33.6% of the underlying collateral upgraded and 5.1% of the collateral downgraded. Currently, 20.2% of the portfolio has a Fitch derived rating of investment grade, improved from 4% at last review. Collateral with a Fitch derived rating in the 'CCC' category and below has improved to 57.6% from 62.6% at the last rating action. Over this time, the class A notes have received $15.77 million in principal payments, for a total of $53.3 million in principal paydowns since issuance.

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. 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 credit enhancements for the class A through D notes is consistent with the rating indicated below.

For the class E through K notes, Fitch analyzed each 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 E and F notes have been affirmed at 'CCsf', indicating that default is probable. Similarly, the classes G through K notes have been affirmed at 'Csf', indicating that default is inevitable.

ARCAP 2004-1 is backed by 32 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 A and B notes reflects Fitch's view that the notes will continue to delever. The affirmation of the remaining notes reflects the concerns about the increasing obligor concentration, as the remaining collateral consists of 32 assets from eight issuers, and the potential for adverse selection as the portfolio continues to amortize.

In addition to those sensitivities discussed above, further negative migration and defaults beyond those projected by Structured Finance PCM as well as increasing concentration in assets of a weaker credit quality could lead to downgrades.

DUE DILIGENCE USAGE

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

Fitch has upgraded the following classes:

--$3,761,006 class A notes to 'Asf' from 'BBsf'; Outlook Stable;

--$30,600,000 class B notes to 'BBsf' from 'Bsf'; Outlook Stable from Negative.

Fitch has affirmed the following classes:

--$26,500,000 class C notes at 'CCCsf';

--$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

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Global Surveillance Criteria for Structured Finance CDOs (pub. 13 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867800

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989146

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989146

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/20150806006548/en/

Fitch Ratings
Primary Analyst
Jay Bullie
Associate Director
+1-312-368-2079
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Committee Chairperson
Britt Johnson
Senior Director
+1-312-606-2341
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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