Published: March 09, 2011
Fitch Affirms 7 Classes of Blue Heron Funding II, Ltd.
NEW YORK - (BUSINESS WIRE) - Fitch Ratings has affirmed the ratings on seven classes of notes issued
by Blue Heron Funding II, Ltd. (Blue Heron II), as follows:
-- $405,449,622 class A notes at 'Csf';
-- $17,205,585 class B notes at 'Csf';
-- $34,409,633 class C notes at 'Csf';
-- $21,920,190 class D notes at 'Csf';
-- $17,302,125 class E notes at 'Csf';
-- $17,302,125 class E additional interest (interest only) at 'Csf';
-- $3,986,875 Certificates (principal only) at 'AAAsf'; Outlook Stable.
This review was conducted under the framework described in the reports
'Global Structured Finance Rating Criteria' and 'Global Rating Criteria
for Structured Finance CDOs'. The Structured Finance Portfolio Credit
Model (SF PCM) and Fitch's cash flow model were not used in this review
because the transaction is undercollateralized and structural features
were determined to have minimal impact in the context of the classes'
ratings.
Since Fitch's last rating action in March 2010, the portfolio balance
has declined to $390.9 million from $534.2 million, a difference of
$143.3 million, while the class A notes have only received $116.8
million of principal repayment. Approximately $23.3 million of
writedowns in the portfolio have left the entire capital structure of
Blue Heron II with negative credit enhancement levels. Principal
proceeds have been needed intermittently to cover shortfalls in interest
collections for accrued interest to the class A, class B and class C
notes, which also contributed to the erosion of credit enhancement.
The class A, class B and class C notes are rated to the timely receipt
of interest and continue to receive accrued interest distributions, from
a combination of interest and principal collections. The class D and
class E notes, and class E additional interest are no longer receiving
interest distributions due to failing class A/B/C coverage tests.
Based on the current portfolio and the anticipated future loss of
additional principal proceeds to cover interest shortfalls, Fitch
believes default continues to appear inevitable for the classes A, B, C,
D and E notes and the class E additional interest.
The Certificates are rated to the ultimate receipt of principal, where
coupon payments received in the interest waterfall are applied to reduce
the outstanding rated balance. While these distributions are no longer
being made due to failing coverage tests and are not expected to resume
in the future, the principal of the Certificates is protected by a
Certificate Protection Asset, which is a zero coupon bond with a face
value of $6 million maturing in April 2030, that was issued by
Resolution Funding Corporation, a U.S. government agency. As per the
terms of the transaction, no party to the transaction other than the
Certificate holders have claim against the Certificate Protection Asset.
Therefore, the Certificates are affirmed at 'AAAsf' and retain their
Stable Outlook.
Because the ultimate receipt of the remaining rated balance is not
linked to the performance of the transaction's underlying portfolio,
Fitch is not assigning a Loss Severity (LS) Rating to the Certificates.
Blue Heron II is a structured finance (SF) collateralized debt
obligation (CDO) that closed on Dec.
22, 2005 and is managed by Westdeutsche Landesbank Girozentrale, New
York Branch. The portfolio is composed of commercial mortgage-backed
securities (43.2%), residential mortgage-backed securities (38.3%), SF
CDOs (11.7%), corporate CDOs (3.5%), corporate debt (2.1%), and
commercial and consumer asset-backed securities (1.3%) from 1996 through
2007 vintage transactions.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from the
issuer, periodic trustee reports, note valuation reports, and the public
domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 16, 2010);
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 15, 2010).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564895
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
Primary Surveillance Analyst
Erika Tsang, CFA,
+1-212-908-0817
Associate Director
Fitch, Inc.
One State
Street Plaza
New York, NY 10004
or
Committee Chairperson
Karen
Trebach, +1-212-908-0215
Senior Director
or
Media
Relations:
Sandro Scenga, +1-212-908-0278
Email: sandro.scenga@fitchratings.com
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