OREANDA-NEWS. Fitch Ratings has taken the following rating actions on notes from 10 structured finance collateralized debt obligations (SF CDOs) with exposure to various structured finance assets:

--Affirmed 32 tranches;
--Upgraded four tranches;
--Revised four Rating Outlooks to Positive;
--Placed one tranche on Rating Watch Negative.

KEY RATING DRIVERS
Eighteen classes rated 'Csf' have credit enhancement (CE) levels that are exceeded by the expected losses (EL) from the distressed collateral (rated 'CCsf' and lower) of each portfolio. For these classes, the probability of default was evaluated without factoring potential losses from the performing assets. In the absence of mitigating factors, default for these notes at or prior to maturity continues to appear inevitable.

One class has been affirmed at 'CCsf' as default remains probable. The class' current CE level exceeds the EL; however, it's lower than losses projected at the 'CCCsf' rating stress under Fitch's Structured Finance Portfolio Credit Model (SF PCM) analysis.

Two classes, affirmed at 'Dsf', are non-deferrable classes that continue to experience interest payment shortfalls.

The Certificates in Blue Heron Funding VI, Ltd. have been affirmed at their current rating of 'AAAsf' with a Stable Outlook. The rating assigned to these certificates is based on the rating of the principal protection asset, which is a zero coupon bond issued by Resolution Funding Corporation, a U.S. government-backed entity. The bond is scheduled to mature in April 2030.

Fitch has placed the class I-MM notes issued by Northlake CDO I, Ltd. on Rating Watch Negative. Since last rating action, the CDO Trustee filed an interpleader complaint with the United States District Court concerning the priority of repayment of principal on the class I-MM and class I-A notes after the Acceleration of the transaction. The class I-MM notes are currently paid principal senior to class I-A notes, however, as a result of the legal proceedings, there is a possibility that these classes will receive principal on a pari passu basis, in which case the class I-MM rating will likely be downgraded. As a result, Fitch placed the notes on Rating Watch Negative. The resolution of the situation may take place subsequent to six months in the future. Accordingly, the Rating Watch Negative will not be resolved until Fitch determines that the legal proceedings have reached a definitive conclusion.

The upgrade of the class A-3L notes issued by Diversified Asset Securitization Holdings III, L.P. to 'Bsf' from 'CCCsf' and the upgrade of the class A-2 notes issued by Pacific Bay CDO, Ltd. to 'BBsf' from 'Bsf', is attributed to significant deleveraging of each transaction's capital structure, which has resulted in increased CE available to the notes. According to the SF PCM analysis, these classes are now able to withstand losses at a higher rating stress compared to Fitch's previous review.

The following two transactions continue to be impacted by the amount of excess spread available. Fitch applied its Cash Flow Model (CFM) framework to the rating of the notes issued by these transactions.

The upgrade of the class A-1 and A-1L notes (together, class A-1 notes) issued by Diversified Asset Securitization Holdings II, L.P. to 'Asf' from 'BBBsf' is due to continued deleveraging of the capital structure increasing the CE levels available to the notes. The class A-1 notes have received approximately $4.8 million in principal proceeds since the last review and they now are able to pass above the 'Asf' rating stress in six out of the nine scenarios in Fitch's cash flow analysis. However, the risk of interest shortfall remains a possibility, especially if notes extend their life; this risk is viewed as inconsistent with a rating higher than 'Asf'. The revision of the Outlook to Positive reflects Fitch's view that the notes' CE will continue to increase and that the interest shortfall risks to the notes will diminish as the notes amortize.

The affirmation of the class C-1 and C-2 notes (together, class C notes) issued by Arroyo I CDO, Ltd. follows the payoff of the class B notes since last review. The class C notes became the most senior tranche outstanding and timely for interest on the August 2015 payment date when they received all of their previously deferred interest amounts. Although, in three out of nine scenarios in the CFM the notes are passing below their current rating, Fitch believes that the average amount of principal collections received over the past four quarters is a more appropriate representation of how much principal will be received from the underlying portfolio going forward. Fitch believes that at this rate of principal collections, the risk of interest and principal shortfall are commensurate with a 'Bsf' rating.

RATING SENSITIVITIES
Negative migration, defaults beyond those projected, and lower than expected recoveries could lead to downgrades for classes analysed under the SF PCM. Classes already rated 'Csf' have limited sensitivity to further negative migration given their highly distressed rating levels. However, there is potential for non-deferrable classes to be downgraded to 'Dsf' should they experience any interest payment shortfalls.

This review was conducted under the framework described in the reports 'Global Structured Finance Rating Criteria' and 'Global Surveillance Criteria for Structured Finance CDOs'. The individual rating actions are detailed in the report 'Fitch Takes Various Rating Actions on 10 SF CDOs from 2000 to 2005 Vintages', released and available at 'www.fitchratings.com' by performing a title search or by using the link.

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