News Column

Fitch Affirms NewStar Commercial Loan Trust 2007-1

August 12, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed six classes of notes issued by NewStar Commercial Loan Trust 2007-1 (NewStar 2007-1) as follows:

--$203,633,854 class A-1 notes at 'AAAsf'; Outlook Stable;

--$64,058,165 class A-2 notes at 'AAAsf'; Outlook Stable;

--$24,000,000 class B notes at 'AAsf'; Outlook Stable;

--$58,500,000 class C notes at 'Asf'; Outlook Stable;

--$27,000,000 class D notes at 'BBB+sf'; Outlook Stable;

--$29,100,000 class E notes at 'BBsf'; Outlook Stable.

Fitch does not rate the class F notes.

KEY RATING DRIVERS

The affirmations are based on the stable performance of the transaction since Fitch's last rating action in August 2013. Since the last review, the class A-1 and A-2 notes have received a total of approximately $150.2 million, or 35.9% of their previous outstanding balance. According to the loan tape provided to Fitch as of July 10, 2014, the portfolio has no charged-off loans and Fitch considers approximately 10.6% of the total commitments to be in the 'CCC' category or below, compared to 16.8% at the last review. The Outlooks on all classes of notes have also been maintained to reflect the expectation that the performance of the underlying portfolio and outstanding liabilities will remain stable in the near term.

The notes of NewStar 2007-1 benefit from credit enhancement in the form of collateral coverage, note subordination, and the application of excess spread via the additional principal amount (APA). For every dollar that is charged off of the performing portfolio, the APA feature directs recoveries from charged-off loans and excess interest proceeds otherwise available to the certificate holders to pay down the senior-most notes in an amount equal to the charged-off amount. The APA was completely paid off on the February 2010 payment date, and as a result, the certificate holders have been receiving excess interest proceeds since the August 2010 payment date. In the absence of additional charged off loans, Fitch expects the certificate holders to continue receiving excess interest proceeds.

This review was conducted under the framework described in the report 'Global Rating Criteria for Corporate CDOs' using the Portfolio Credit Model (PCM) for projecting future default and recovery levels for the underlying portfolio. These default and recovery levels were then utilized in Fitch's cash flow model under various default timing and interest rate stress scenarios, as described in the report. All notes passed the various stress scenarios at rating levels in line with or above their current ratings.

Although classes B, C, and D are able to pass at higher ratings in the cash flow model, they have been affirmed due to their subordinated position in the capital structure and their potential exposure to adverse selection as the portfolio becomes more concentrated.

RATING SENSITIVITIES

The performance of the portfolio may be sensitive to significant credit deterioration or distressed recoveries of the portfolio. The notes may also be sensitive to increasing concentration risks as the portfolio continues to amortize. Fitch will continue to monitor the transaction regularly and as warranted by such events.

NewStar 2007-1 is a collateralized debt obligation (CDO) that closed on June 5, 2007 and is managed by NewStar Financial, Inc. (NewStar). The transaction's reinvestment period ended in May 2013, and its final legal maturity date is in September 2022. NewStar 2007-1 is secured by a portfolio comprised of 97.2% corporate loans, primarily to middle-market issuers, and 2.8% CLOs, based on the total commitment amounts. Fitch's leveraged finance group provided model-based credit opinions for a majority of the loans in the portfolio. Information for the model-based credit opinions was gathered from financial statements provided to Fitch by NewStar.

Additional information is available at 'www.fitchratings.com'.

The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, and the public domain.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'Global Rating Criteria for Corporate CDOs' (Jul. 25, 2014);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 23, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=849756

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.



Fitch Ratings

Primary Surveillance Analyst

Felix Chen

Associate Director

+1 212-908-9154

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Committee Chairperson

Alina Pak, CFA

Senior Director

+1 312-368-3184

or

Media Relations, New York

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com


Source: Fitch Ratings


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