OREANDA-NEWS. S&P Global Ratings today raised its credit ratings on Renoir CDO B. V.'s class A, B, C, D1, and D2 notes (see list below).

Today's upgrades follow our review of the transaction's performance, using data from the April 30, 2016 report, and the application of our relevant criteria (see "Related Criteria").

Since our previous review on Sept. 19, 2014, the weighted-average spread earned on the collateral pool has decreased to 1.44% from 1.48% and the transaction's weighted-average life has increased to 6.37 years from 5.51 years (see "All Ratings Raised In Cash Flow CDO Transaction Renoir CDO Of ABS Following Increased Credit Enhancement"). The movements in portfolio statistics have been the result of portfolio maturation and amortization as the manager has been restricted from reinvesting any proceeds except prepayments. A lower weighted-average spread would generally result in lower break-even default rates (BDRs) while a higher weighted-average life would generally result in higher scenario default rates (SDRs). The BDR is the maximum default rate that a tranche can withstand while the SDR measures the expected default rate.

We have also observed that the proportion of assets that we consider to be rated in the 'CCC' category ('CCC+', 'CCC', and 'CCC-') has decreased in both notional and percentage terms, to 9.2% from 10.0%. Assets that we consider to be defaulted (i. e., debt obligations of obligors rated 'CC', 'SD' [selective default], or 'D') have decreased notionally but remained constant in percentage terms.

As a result of portfolio amortization, the class A notes have repaid by €35.0 million since our September 2014 review and now have an outstanding balance of €35.5 million. Due to the repayment of the class A notes, credit enhancement has almost doubled for all classes of notes. In our analysis, we also considered that the transaction is in its post-reinvestment period, as it has been since April 2010. The class D par value test is in breach and has been since our previous review. This restricts the manager from reinvesting any sale proceeds and ensures that excess spread is diverted to pay down the rated notes.

We subjected the capital structure to our cash flow analysis, by applying our corporate cash flow collateralized debt obligation (CDO) criteria, to determine the BDR at each rating level (see "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Sept. 17, 2015). We used the reported portfolio balance that we considered to be performing, the principal cash balance, the weighted-average spread, and the weighted-average recovery rates that we considered to be appropriate.

We incorporated various cash flow stress scenarios, using various default patterns, levels, and timings for each liability rating category, in conjunction with different interest rate stress scenarios. To help assess the collateral pool's credit risk, we used CDO Evaluator 6.3 to generate SDRs at each rating level. We then compared these SDRs with their respective BDRs.

Taking into account our observations outlined above, we consider the available credit enhancement for the class A, B, C, D1, and D2 notes to be commensurate with higher ratings than those currently assigned. We have therefore raised our ratings on these classes of notes.

Based on our counterparty risk analysis, we have concluded that the transaction documents for the credit default swap and repo counterparty (BNP Paribas Fortis SA/NV) are not in line with our current counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013). As such, we have conducted our cash flow analysis assuming that the transaction does not benefit from support from a derivative counterparty in rating scenarios that are one notch above the rating of the counterparty--issuer credit rating (ICR) plus one notch. We use the ICR plus one notch as the downgrade provisions are in line with our previous counterparty criteria. Above these rating levels, we considered in our analysis that these counterparty agreements do not exist and that the assets are exposed to currency risk.

Our ratings on the notes are capped at 'A+ (sf)' due to the account bank counterparty replacement language present in the transaction documents.

The portion of performing assets not rated by S&P Global Ratings is 16.1%. In this case, we apply our mapping criteria to map notched ratings from another ratings agency and to infer our rating input for the purpose of inclusion in CDO Evaluator (see "Mapping A Third Party's Internal Credit Scoring System To Standard & Poor's Global Rating Scale," published on May 8, 2014). In performing this mapping, we generally apply a three-notch downward adjustment for structured finance assets that are rated by one rating agency and a two notch downward adjustment if the asset is rated by two rating agencies.

Renoir CDO is a cash flow CDO transaction that securitizes structured finance assets.