OREANDA-NEWS. S&P Global Ratings today affirmed its ratings on the class A, B, C, D, E, and F notes from Babson CLO Ltd. 2013-I, a U. S. collateralized loan obligation (CLO) transaction that closed in June 2013 and is managed by Babson Capital Management LLC (see list).

Today's rating actions follow our review of the transaction's performance using data from the July 2016 trustee report. The transaction is scheduled to remain in its reinvestment period until April 2017.

Since the transaction's effective date, the trustee reported the collateral portfolio's weighted average life has decreased to 4.38 years from 5.84 years. This seasoning has decreased the overall credit risk profile, which, in turn, provided more cushion to the tranche ratings. In addition, the number of obligors in the portfolio has increased during this period, which contributed to the portfolio's increased diversification.

The transaction has experienced an increase in both defaults and assets rated 'CCC+' and below since the August 2013 effective date report. Specifically, the amount of defaulted assets increased to $5.98 million from none as of the August effective date report. The level of assets rated 'CCC+' and below increased to $23.94 million (5.17% of the aggregate principal balance) from none over the same period. In addition, the weighted average rating has declined to 'B' from 'B+'.

The increase in defaulted assets, as well as other factors, has affected the level of credit support available to all tranches, as seen by the modest decline in the overcollateralization (O/C) ratios:The class A/B O/C ratio was 133.27%, down from 133.86%.The class C O/C ratio was 120.60%, down from 121.13%.The class D O/C ratio was 113.62%, down from 114.12%.The class E O/C ratio was 108.07%, down from 108.55%.Even with the decline in credit support, all coverage tests are currently passing and are above the minimum requirements.

Overall, the increase in defaulted assets and assets rated 'CCC+' and below has been largely offset by the decline in the weighted average life. However, any significant deterioration in these metrics could negatively affect the deal in the future, especially the junior tranches. As such, the affirmed ratings reflect our belief that the credit support available is commensurate with the current rating levels.

Our review of this transaction included a cash flow analysis, based on the portfolio and transaction as reflected in the aforementioned trustee report, to estimate future performance. In line with our criteria, our cash flow scenarios applied forward-looking assumptions on the expected timing and pattern of defaults, and recoveries upon default, under various interest rate and macroeconomic scenarios. In addition, our analysis considered the transaction's ability to pay timely interest and/or ultimate principal to each of the rated tranches. The results of the cash flow analysis demonstrated, in our view, that all of the rated outstanding classes have adequate credit enhancement available at the rating levels associated with these rating actions.

Our review of the transaction also relied in part upon a criteria interpretation with respect to "CDOs: Mapping A Third Party's Internal Credit Scoring System To Standard & Poor's Global Rating Scale," published May 8, 2014, which allows us to use a limited number of public ratings from other NRSROs for the purposes of assessing the credit quality of assets not rated by S&P Global Ratings. The criteria provide specific guidance for treatment of corporate assets not rated by S&P Global Ratings, and the interpretation outlines treatment of securitized assets.

We will continue to review whether, in our view, the ratings assigned to the notes remain consistent with the credit enhancement available to support them, and will take rating actions as we deem necessary.