Since Fitch's last rating action in May 2008, the portfolio experiencedsignificant negative credit migration with 75.7% of the portfolio downgraded aweighted average of 8.4 notches. Currently, assets rated below investment gradecomprise 51.4% of the total portfolio, of which approximately 37% is rated 'CCC'or lower. Additionally, as of the March 31, 2009 trustee report, approximately$193.2 million, or 24.3%, of the current portfolio is now considered to bedefaulted, as per the transaction's governing documents. As a result of the continued deterioration within the portfolio, particularlythe increase in defaulted assets, the class A/B overcollateralization (OC) ratiofell below 100%, to its current level of 67.6% failing its covenant of 101.8%.Since April 2008, when the trigger was first breached, the transaction hasredirected all interest proceeds that would otherwise be available to payinterest to the subordinated notes, to delever the class A-1 notes until thetest is passed or the notes are paid in full. Approximately 18.6%, or $163.6million, of the class A-1 notes have amortized since closing in 2005. Fitchexpects the class A-1 notes to continue receiving timely interest payments;however, based on the performance of the portfolio there is a high likelihoodthat the principal of the notes will not be fully repaid by the stated maturityin November 2041. The class A-2 and class B notes continue to receive their accrued quarterlyinterest payments and are expected to do so unless there are not enough proceedsavailable for distribution and the transaction enters an even of default.
If anevent of default occurs, the class A-1 notes could vote to accelerate thematurity of the notes whereby all distribution proceeds would go to class A-1until they are paid in full On the Jan. 30, 2009 payment date, the class A-1interest distribution was made in part from principal proceeds, as were theentire class A-2 and class B interest distributions. The credit enhancementlevels for the class A-2 and B notes continue to deteriorate from both principalproceeds used to pay interest as well as further defaults of underlying assets.The downgrades to 'CC' reflect Fitch's expectation of zero principal recovery. The class C-1, C-2, and C-3 notes have and will continue to pay-in-kind (PIK),whereby the principal balances of the notes are written up by the amount ofinterest missed due to the class A/B OC test failure.
Fitch does not expect anyfuture interest or principal payments to any of the class C notes. Fort Sheridan is a cash flow CDO, which closed on March 30, 2005 and is managedby Vanderbilt Capital Advisors LLC The transaction's portfolio comprises ofU.S. RMBS and SF CDOs, primarily of the 2005, 2006, and 2007 vintages Presently41.2% of the portfolio is exposed to U.S subprime RMBS, 24.1% is exposed toU.S. SF CDOs, and 20.1% of the portfolio is exposed to Alt-A RMBS bonds.
Theremaining 14.2% consists of prime RMBS (14.1%) and one commercialmortgage-backed security (CMBS). These rating actions resolve the 'Under Analysis' status issued on Oct. 14, 2008following Fitch's announcement of its proposed criteria revision for analyzingSF CDOs. The revised criteria report, 'Global Rating Criteria for StructuredFinance CDOs' was published in its final form on Dec.
16, 2008 along with anupdated version of the Fitch Portfolio Credit Model (PCM) that includesadditional functionality for analyzing SF CDOs. As part of this review, Fitchmakes standard adjustments for any names on Rating Watch Negative or with aNegative Outlook, downgrading such ratings for default analysis purposes bythree and one notches, respectively. Fitch will continue to monitor and review this transaction for future ratingadjustments. Additional transaction information and historical data areavailable on the Fitch Ratings web site at Fitch's rating definitions and the terms of use of such ratings are available onthe agency's public site, Published ratings, criteria andmethodologies are available from this site, at all times. Fitch's code ofconduct, confidentiality, conflicts of interest, affiliate firewall, complianceand other relevant policies and procedures are also available from the 'Code ofConduct' section of this site. Fitch Ratings, New YorkBrian Vorderbrueggen, 212-908-9102Kevin Kendra, 212-908-0760orMedia Relations:Sandro Scenga, 212-908-0278Email: Copyright Business Wire 2009.