Fitch Upgrades 5 and Affirms 2 Classes of Putnam Structured Product CDO 2001-1, Ltd.

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has upgraded five, affirmed two, and revised or assigned Rating Outlooks on four classes of notes issued by Putnam Structured Product CDO 2001-1, Ltd. (Putnam 2001-1). The rating actions are as follows:

--$5,376,291 class A-1MM-a notes upgraded to 'AAsf' from 'A+sf', Outlook revised to Stable from Positive;
--$4,800,260 class A-1MM-b notes upgraded to 'AAsf' from 'A+sf', Outlook revised to Stable from Positive;
--$10,080,546 class A-1SS notes upgraded to 'AAsf' from 'A+sf', Outlook revised to Stable from Positive;
--$33,708,716 class A-2 notes upgraded to 'Asf' from 'BBBsf', Outlook Stable;
--$24,000,000 class B notes upgraded to 'Bsf' from 'CCsf', assigned Outlook Stable;
--$8,758,096 class C-1 notes affirmed at 'Csf';
--$10,055,691 class C-2 notes affirmed at 'Csf'.

This review was conducted under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Structured Finance Portfolio Credit Model (SF PCM) for projecting future default levels for the underlying portfolio. These default levels were then compared to the breakeven levels generated by Fitch's cash flow model of the CDO under various default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs' for the class A-1MM-a, A-1MM-b, A-1SS (together, class A-1), class A-2 and class B notes.

KEY RATING DRIVERS
The upgrades are attributed to improved credit enhancement (CE) available to all rated notes as a result of the significant deleveraging of the capital structure since Fitch's last rating action in May 2012, offsetting modest deterioration of the underlying collateral.

Since the last review, approximately 14% of the underlying portfolio has been downgraded a weighted average of 3.0 notches and 9.2% has been upgraded a weighted average of 1.7 notches. Currently, approximately 32.1% of the portfolio has a Fitch-derived rating below investment grade and 24.5% has a rating in the 'CCCsf' rating category or lower, compared to 30.4% and 18.2% respectively, at previous review.

Over the last 12 months, the class A-1 notes have received approximately $38.9 million, or 65.7% of its previous balance, in principal redemptions. In addition to normal principal amortization, the notes have also been benefiting from excess spread redirected to cure the failure of the class C overcollateralization (OC) test. Approximately $4.2 million of such interest proceeds were used to amortize the class A-1 notes over the last four payment dates. The current outstanding balance represents 9.6% of the original issued amount. While the breakeven levels for the class A-1 notes indicate it is able to withstand higher rating stresses than 'AAsf' in the base and sensitivity scenario analyses, the swap counterparty AIG Financial Products Corp. (AIG) does not meet Fitch's counterparty criteria for a class rated 'AAAsf', precluding an upgrade to the highest rating category at this time.

The class A-2 and class B notes have also benefited from the amortization of the capital structure as the credit enhancement for these notes has also increased significantly. While the cash flow modeling results vary across different interest rate and default timing scenarios, the breakeven rates are generally consistent with the rating levels that each class is being upgraded to today.

The Stable Outlook on the class A-1, A-2 and class B notes reflects Fitch's view that the transaction will continue to delever and that each class has sufficient CE to offset potential deterioration of the underlying collateral going forward. Fitch does not assign Outlooks to classes rated 'CCCsf' or below.

Breakeven levels for the class C-1 and C-2 (together, class C) notes indicate ratings below SF PCM's 'CCCsf' default level, which is the lowest level of defaults projected by SF PCM. Fitch analyzed these classes by comparing the respective CE levels for each class to the expected losses from the distressed and defaulted assets in the portfolio (rated 'CCsf' or lower). This comparison indicates that default continues to appear inevitable for the class C notes at or prior to maturity. As of the most recent distribution date, the class C notes continue to receive timely interest payments.

RATING SENSITIVITIES
Fitch has also conducted a sensitivity scenario analysis because the interest rate swap counterparty to the transaction, AIG (rated 'BBB+', Outlook Stable by Fitch as of Feb. 14, 2013), does not meet Fitch's counterparty criteria, titled 'Counterparty Criteria for Structured Finance Transactions'. Fitch considered the impact of a hypothetical default by the counterparty, assuming the worst scenario when the swap, currently out-of-the-money, is not terminated by the issuer. In that scenario, the CDO continues to pay its side of the swap until the expiration in August 2013, but does not receive payments from the counterparty. The results of this scenario indicate that the class A-1, A-2 and class B notes have sufficient CE levels to withstand the hypothetical counterparty default under the relevant rating stresses.

Putnam 2001-1 is a cash flow structured finance collateralized debt obligation (SF CDO) that closed on Nov. 30, 2001. The portfolio is monitored by Putnam Advisory Company, LLC and is comprised of 33.4% commercial and residential real estate investment trusts, 22.1% residential mortgage-backed securities, 15.7% commercial mortgage-backed securities, 12.9% corporate bonds , 8.0% SF CDOs, 5.4% corporate CDOs, and 2.4% commercial and consumer asset-backed securities from 1995 through 2006 vintage transactions.

Additional information is available at www.fitchratings.com.

The information used to assess these ratings was sourced from the issuer, periodic trustee reports, note valuation reports, and the public domain.

Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012)
--'Global Rating Criteria for Structured Finance CDOs' (Oct. 03, 2012)
--'Global Criteria for Cash Flow Analysis in CDOs' (Sep. 13, 2012)
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013)
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012)
--'Counterparty Criteria for Structured Finance Transactions: Derivative Addendum' (May 30, 2012)

Applicable Criteria and Related Research
Counterparty Criteria for Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678938
Counterparty Criteria for Structured Finance Transactions: Derivative Addendum
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678939
Criteria for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535
Global Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518
Global Rating Criteria for Structured Finance CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=690203

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790169
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