OREANDA-NEWS. Fitch Ratings has upgraded one and affirmed six classes of notes issued by ACAS CLO 2007-1 Ltd./Corp. (ACAS CLO 2007-1). Fitch has also revised the Outlooks on two classes of notes to Positive. A full list of rating actions follows at the end of this rating action commentary.

KEY RATING DRIVERS

The upgrade and the Outlook revisions are the result of increased credit enhancement due to the significant amortization of the capital structure and the stable performance of the underlying portfolio. Since the last rating action in June 2014, approximately 38% of class A-1 notes and 48% of class A-1-S notes have been paid.

As of the May 2015 trustee report, the credit quality of the portfolio has improved to 'BB-/B+' from 'B+/B' since the last review. Based on Fitch's Issuer Default Rating (IDR) Equivalency Map, Fitch currently considers 0.37% of the collateral assets to be rated in the 'CCC' category as compared to 3.9% in the last review. Approximately 89.8% of the portfolio has strong recovery prospects or a Fitch assigned Recovery Rating of 'RR2' or higher. The transaction continues to pass all of its coverage tests with ample cushion and most of its concentration limitation and collateral quality tests. The current WAS is reported to be 2.74%, versus a trigger of 2.8%. There are currently 82 obligors, compared to 121 obligors at last review, and there are currently no defaulted assets in the portfolio.

This review was conducted under the framework described in the report 'Global Rating Criteria for Corporate CDOs' using the Portfolio Credit Model (PCM) for projecting future default and recovery levels for the underlying portfolio. These default and recovery levels were then utilized in Fitch's cash flow model under various default timing and interest rate stress scenarios. The cash flow model was customized to reflect the CLO's structural features.

In order to address the increasing concentration risks of the amortizing portfolio, Fitch analysed the current portfolio assuming a combined stress of increased default probabilities, lower recovery assumptions and higher correlation by applying a default multiplier of 125% to the default probability of each obligor, 0.75x multiplier on loan-level recovery rates and 2x base correlation for the country, respectively, in PCM. Fitch also assumed a weighted average spread (WAS) of 2.50% on the portfolio. All classes of notes are able to perform at or above their current ratings under the default timing and interest rate stresses in the cash flow model. Fitch's modelling results for the class B, C and D notes indicated higher passing ratings when the current portfolio's characteristics were analyzed, but the notes' performance under the combined stress scenario indicated that upgrades were not warranted for these notes.

The Stable Outlooks reflect the notes' robust cushions available to withstand future potential deterioration in the underlying portfolio. The Positive Outlooks for the class B and D notes reflect Fitch's expectations of improved performance of the notes in the near term.

RATING SENSITIVITIES

The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', portions of the portfolio being placed on Rating Watch Negative or Outlook Negative, overcollateralization (OC) or interest coverage (IC) test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch expects increasing concentration risks and breaches of portfolio covenants as the transaction continues out of reinvestment, but increased levels of credit enhancement should also mitigate these risks as the portfolio amortizes.

ACAS CLO 2007-1 is a cash flow collateralized loan obligation (CLO) that closed April 26, 2007 and is managed by American Capital CLO Management, LLC (f/k/a American Capital Asset Management, LLC). The transaction exited its reinvestment period in April 2014, but the manager is still permitted to reinvest proceeds from prepaid assets, credit improved and credit risk sales after the reinvestment period, subject to certain conditions.

DUE DILIGENCE USAGE

No third party due diligence was reviewed in relation to this rating action.

Fitch has upgraded the following rating:

--\$25,000,000 class A-2 to 'AAAsf' from 'AAsf'; Outlook Stable.

Fitch has affirmed and revised the Rating Outlook on the following:

--\$68,308,026 class A-1 at 'AAAsf'; Outlook Stable;
--\$70,331,077 class A-1-S at 'AAAsf'; Outlook Stable;
--\$33,750,000 class A-1-J at 'AAAsf'; Outlook Stable;
--\$22,000,000 class B at 'Asf'; Outlook to Positive from Stable;
--\$21,000,000 class C at 'BBBsf'; Outlook Stable.
--\$15,500,000 class D at 'Bsf'; Outlook to Positive from Stable.

Fitch does not rate the Subordinated Notes.