(The following statement was released by the rating agency)
Oct 01 - Fitch Ratings has taken various rating actions on eight DTC transactions. The agency upgraded three classes, affirmed 40 classes, resolved Rating Watch Negative (RWN) on nine classes and is maintaining another three classes on RWN. A full rating breakdown is provided at the end of this commentary.
The upgrades of the class E notes of DTC Four, DTC Five and DTC Six reflect growth in credit enhancement (CE) levels. Also, the affirmations of 40 classes reflect Fitch's view that available CE levels are sufficient to support the current ratings.
The resolution of the RWN reflects Fitch's view that the affected classes have sufficient protection from their available liquidity mechanism and CE levels against their exposure to one ineligible Japanese counterparty as account bank ('A-'/Stable/'F1') in the respective transactions. The rating action comes after Fitch has completed its analysis, in which it assumed there has been no replacement of the account bank. For more information on the RWN, see "Fitch Places 24 Japan SF Tranches on RWN Due to Ineligible Counterparties", dated 22 August 2012.
Fitch is maintaining the RWNs on DTC Three and DTC Eight to reflect their weaker liquidity protection relative to the other transactions. Unlike other transactions, these two deals have been left with no advancing agent since the bankruptcy of Lehman Brothers Japan Inc. in September 2008. Therefore, the current liquidity enhancement for these transactions may not be sufficient to support their 'AAAsf' stress scenario. Fitch will continue to monitor the progress of remedial action by the transaction parties and review the RWN status within two months.
The newly revised Positive Outlook on the class B and C of DTC Two reflects improved CE levels. Although similar improvement has been observed in DTC One and Three, Fitch has not changed the Outlook, due to relative weakness of these two transactions. DTC One has a smaller number of loans in the underlying pool compared with other transactions, leading Fitch to assume greater performance volatility in higher rating stress scenarios. For DTC Three, the absence of an advancing agent has left its liquidity protection relatively weaker than other transactions.
All of the transactions are securitisations of mortgage loans backed by multi-family apartment properties. The master lease structure in place contributes to stable loan performance and for each of the eight transactions, delinquencies and defaults have been limited to date. Fitch expects this trend to continue.
Fitch considers that the cash flow performance of the underlying properties has been moderately below the agency's initial assumptions due to a decline in rent income. This has led to an increase in net loss assumption from each underlying pool in stressed scenarios. However, this has been offset by improved CE levels.