OREANDA-NEWS. Fitch Ratings has affirmed all classes of Newcastle CDO IX Ltd./LLC (Newcastle CDO IX). Fitch has also withdrawn the ratings on classes H, J, and K since they are no longer considered relevant to Fitch's coverage due to lack of investor interest. A full list of rating actions follows at the end of this ratings action commentary.

KEY RATING DRIVERS

The affirmations reflect the relatively stable performance of the portfolio since the last rating action. Fitch's base case loss expectation is 76.6%, compared to 56.3% at the last rating action as the pool has become more concentrated and the risk for adverse selection continues with the remaining assets. Since the last rating action and as of the May 2015 trustee report, principal paydowns totalled \$126.7 million and realized losses totalled \$10.4 million. As of the May 2015 trustee report, all overcollateralization and interest coverage tests were in compliance.

Newcastle CDO IX consists primarily of subordinate commercial real estate (CRE) debt positions (58.9% of the pool consists of mezzanine debt, preferred equity, and B-notes) and non-traditional property types (44% of the pool consists of construction, hotel, and golf assets). Defaulted assets and assets of concern currently comprise 0% and 42.8%, respectively, compared to 3.2% and 45.7% at the last rating action.

As of the May 2015 trustee report and per Fitch categorizations, the collateralized debt obligation (CDO) was substantially invested as follows: CRE mezzanine debt (34.4%), real estate bank loans (23.9%), preferred equity (17.5%), commercial mortgage-backed securities (CMBS; 8.1%), CRE CDOs (8%), B-notes (7%), and whole loans (1.1%). The property type composition includes construction (17.6%), retail (14.9%), golf (14.4%), hotel (12%), and single family residences (1.1%).

Under Fitch's methodology, approximately 82.2% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. In this scenario, the modeled average cash flow decline is 7% from, generally, year-end or trailing-twelve month 2014 cash flows. Modeled recoveries are low at 6.8%.

The largest contributor to Fitch modeled losses is the non CRE loan portion of the collateral (40.1% of pool), which includes CMBS, CRE CDOs, and real estate bank loans with a Fitch-derived weighted average rating of 'B-/CCC+'.

The second largest contributor to Fitch modeled losses is preferred equity (17.5%) on a planned construction project of a super-regional mall and retail/entertainment facility located in East Rutherford, New Jersey. The project's original business plan stalled due to the economic downturn and multiple delays and cost overruns. The overall project designs have been updated with the selection of a new replacement developer to include a planned amusement/water park and the originally planned entertainment/retail center. Fitch remains concerned with the uncertainty and timing surrounding the ultimate completion of the business plan. The original loan was restructured whereby the existing lender debt was subordinated to additional debt from new construction financing and new equity contributions by the selected replacement developer.

The third largest contributor to Fitch modeled losses is a mezzanine loan (14.4%) secured by an interest in a portfolio of golf courses located across the United States. Fitch modeled a full loss on this overleveraged position in its base case scenario.

This transaction was analyzed according to the 'Surveillance Criteria for U.S. CREL CDOs', which applies stresses to property cash flows and debt service coverage ratio tests to project future default levels for the underlying portfolio. Recoveries are based on stressed cash flows and Fitch's long-term capitalization rates. The default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under the various default timing and interest rate stress scenarios, as described in the report 'Global Rating Criteria for Structured Finance CDOs'. The breakeven rates for classes E, F, and G are generally consistent with the ratings listed below.

The ratings for classes H through L are based upon a deterministic analysis that considers Fitch's base case expected loss for the pool and the current percentage of defaulted assets and assets of concern, factoring in anticipated recoveries relative to each class' credit enhancement.

Newcastle CDO IX is a CRE CDO managed by Newcastle Investment Corp. The CDO exited its reinvestment period in May 2012. The CDO was originally issued as an \$825 million CRE CDO; however, in April and September 2009, notes with a face amount of \$64.525 million were surrendered to the trustee for cancellation.

RATING SENSITIVITIES

The Stable Outlooks on classes E and F reflect improved credit enhancement and expected continued paydowns. The Negative Outlook on class G reflects the pool's collateral concentrations and the potential for future downgrades if there is deterioration in loan performance or if the ratings of the underlying rated securities migrate downward. The distressed classes are subject to downgrade as losses are realized or if realized losses exceed Fitch's expectations.