Fitch Affirms 11 CLOs from Various Vintages
KEY RATING DRIVERS
The affirmations on all classes included in this review are based on the sufficient credit enhancement (CE) available to the notes.
Seven out of 11 reviewed CLOs have experienced some deterioration in the credit quality of their portfolios, as reflected by the increase in Fitch's weighted average rating factor (WARF) since Fitch's last rating action. The accompanying Rating Action Report details each reviewed CLO's exposure to loans of issuers with Fitch's Issuer Default Rating (IDR) equivalent at 'CCC' or lower.
According to the most recent trustee reports, two CLOs, Flatiron CLO 2014-1 Ltd. and JFIN 2014-II Ltd., are applying an excess 'Caa/CCC' haircut for overcollateralization (OC) ratio calculations, but continue to pass all OC tests. In addition, eight out of 11 CLOs in this review reported at least one defaulted asset in their most recent reports available for this review.
Further, weighted average spread has come down in all 11 CLOs primarily due to the impact of increasing LIBOR on underlying loans with LIBOR floors. Fitch believes that the observed spread reduction in the underlying portfolios has a limited rating impact for senior notes.
All reviewed transactions continue to have positive cushions between the notes' CE levels and Portfolio Credit Model's (PCM) 'AAAsf' Rating Loss Rates. Fitch's PCM calculates Rating Default Rates and Rating Loss Rates for all rating stresses, as detailed in the report 'Global Rating Criteria for CLOs and Corporate CDOs,' which describes Fitch's framework for analyzing CLOs.
Given the positive cushions, no updated cash flow modelling was completed for this review. In addition, these positive cushions were considered to be sufficient at this point to buffer all reviewed notes against potential further moderate degrees of deterioration. Fitch believes that Outlook Stable remains an appropriate assessment of the notes' rating stability in the near term future.
Please see the Rating Action Report linked below for more performance metrics on individual CLOs in this review.
VARIATIONS FROM CRITERIA
Fitch currently addresses operational risk considerations of CLO managers through on-site reviews every two years and updates its assessment as necessary. Fitch held conference calls with INVESCO Senior Secured Management, Inc. (ISSM) and GC Investment Management LLC on May 9, 2016 and May 10, 2016, respectively, and continues to deem both ISSM and GC Investment Management LLC as acceptable CLO managers. The criteria variation from Fitch's Global Rating Criteria for CLOs and Corporate CDOs arises from the fact that the last on-site reviews for both managers were conducted more than two years ago.
RATING SENSITIVITIES
The ratings of the notes are sensitive to significant negative credit migration and asset defaults, and lower than historically observed recoveries for defaulted assets. Fitch conducted rating sensitivity analysis on the closing date of each CLO, incorporating increased levels of defaults and reduced levels of recovery rates among other sensitivities.
The transactions included in this rating action originated in 2012 - 2015 and are managed by Allianz Global Investors U.S. LLC, Apex Credit Partners LLC, Cutwater Investor Services Corp., Eaton Vance Management, Garrison Investment Group, LP, GC Investment Management LLC, INVESCO Senior Secured Management, Inc. (ISSM), LCM Asset Management LLC, NYL Investors LLC, Sankaty Advisors, LP, and Steele Creek Investment Management LLC. All CLOs remain in their respective reinvestment periods
DUE DILIGENCE USAGE
No third-party due diligence was reviewed in relation to this rating action.
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