OREANDA-NEWS. Fitch Ratings has upgraded Duncannon CRE CDO I P.L.C.'s class C-2 notes and affirmed others, as follows:

Class C-2 (XS0311203813): upgraded to 'CCCsf' from 'Csf'
Class D-1 (XS0311204464): affirmed at 'Csf'
Class D-2 (XS0311204621): affirmed at 'Csf'
Class D-3 (XS0311204977): affirmed at 'Csf'
Class E-1 (XS0311206329): affirmed at 'Csf'
Class E-2 (XS0311206592): affirmed at 'Csf'

Duncannon CRE CDO I is a managed cash securitisation of commercial real estate assets, consisting primarily of CMBS, commercial mortgage B notes and mezzanine mortgage loans.

KEY RATING DRIVERS
The transaction has deleveraged very quickly over the past 12 months paying in full the class A notes by EUR53m, class B notes by EUR40m and the class C-1 notes by EUR40m. Credit enhancement, based on the non-defaulted assets remaining in the portfolio, has subsequently increased for the most senior class C-2 notes to 8.6% from -18.6%, helped significantly by approximately EUR20m received from the amortisation and sale of defaulted assets.

The notional of the non-defaulted assets has fallen to EUR21.8m from EUR138m following substantial amortisation of the loans coupled with the sale of nine assets in August 2015 for EUR50m. The remaining portfolio contains only six non-defaulted assets, from 27 at last review, meaning there is substantial obligor concentration risk. The top obligor currently represents 43% of the performing portfolio with the top three representing 72%. However, the rating of the performing portfolio is stable, with 88% of the assets rated 'B' or above.

Given the substantial decrease in the performing portfolio notional, interest collected will be insufficient to cover senior fees and interest on the senior notes. This will not cause an event of default to the transaction, but principal proceeds will be diverted, reducing the principal available to pay down the notes. Coupled with the high cost of the perfect asset swap facility the transaction will be operating with negative excess spread. The notional on which the perfect asset swap facility is calculated will step down as of the next payment date and so the cost will drop to approximately 305k per quarter from 350k per quarter.

The upgrade of the class C-2 notes reflects that it is now supported by the performing portfolio. In addition, the transaction is currently receiving both interest and principal proceeds from defaulted assets, which currently have a notional of 190m, and so may cover the interest shortfall and provide support in the event of further defaults.

The remaining classes are under-collateralised, deferring interest and rely solely on the recovery of defaulted assets and so have been affirmed at 'Csf'.

RATING SENSITIVITIES
The notes are already at distressed rating levels and as such are unlikely to be affected by any further deterioration in the respective underlying asset portfolios

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by US Bank 10 September 2015
- Transaction reporting provided by US Bank 10 September 2015.