OREANDA-NEWS. S&P Global Ratings today affirmed its ratings on the class A-1, A-2A, A-2B, B, C, D, E, F, and combination notes from ACIS CLO 2013-1 Ltd., a U. S. collateralized loan obligation (CLO) transaction that closed in March 2013 and is managed by Acis Capital Management L. P. (see list).

Today's rating affirmations 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 collateral portfolio's weighted average life has decreased to 4.72 years from 5.69 years. This seasoning has decreased the overall credit risk profile, which, in turn, has provided more cushion to the tranche ratings. In addition, the number of obligors in the portfolio increased during this period, which contributed to the portfolio's increased diversification.

The transaction has experienced an increase in both defaults and assets rated in the 'CCC' range since the April 2013 effective date report. Specifically, the amount of defaulted assets increased to $1.99 million as of July 2016, from zero as of the April 2013 effective date report. The level of assets rated in the 'CCC' range increased to $46.58 million from $11.35 million over the same period.

The increase in defaulted and 'CCC' rated assets, as well as other factors, has affected the level of credit support available to all tranches, as seen by the decline in the overcollateralization (O/C) ratios since the April 2013 effective date:The class A/B O/C ratio was 130.74%, down from 132.09%.The class C O/C ratio was 118.40%, down from 119.63%. The class D O/C ratio was 112.62%, down from 113.79%.The class E O/C ratio was 107.85%, down from 108.96%.The Interest Reinvestment test was 105.55%, down from 105.74%Even with the decline in credit support, all coverage tests are currently passing and are above the minimum requirements.

Overall, the increase in defaulted and 'CCC' rated assets 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.

Although our cash flow analysis pointed to higher ratings for the class B, C, D, E, F, and combination notes, our rating actions considered the increase in the defaults and decline in the portfolio's credit quality. In addition, the ratings reflect additional sensitivity runs that considered the exposure to specific distressed industries and allowed for volatility in the underlying portfolio given that the transaction is still in its reinvestment period.

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.

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.