OREANDA-NEWS. Fitch Ratings has affirmed Avoca CLO VIII Limited and revised the Outlook on the class B notes, as follows:

EUR236.8m class A1 (ISIN XS0312372112): affirmed at 'AAAsf'; Outlook Stable
EUR52.6m class A2 (ISIN XS0312377772): affirmed at 'AAAsf'; Outlook Stable
EUR34.0m class B (ISIN XS0312378747): affirmed at 'AAsf'; Outlook revised to Negative from Stable
EUR30.0m class C (ISIN XS0312379984): affirmed at 'BBBsf'; Outlook Stable
EUR21.5m class D (ISIN XS0312380305): affirmed at 'BBsf'; Outlook Stable
EUR21.5m class E (ISIN XS0312380727): affirmed at 'Bsf'; Outlook Stable
EUR2.8m class U (ISIN 0312381451): affirmed at 'BBsf'; Outlook Stable

Avoca CLO VIII is a securitisation of primarily senior secured loans, unsecured loans, mezzanine loans and high yield bonds, actively managed by KKR Credit Advisors (Ireland).

KEY RATING DRIVERS
The affirmation reflects the stable portfolio performance since the last review in December 2014. Natural deleveraging of the portfolio has led to the amortisation of class A1 notes by EUR61.6m, resulting in increased credit enhancement throughout the capital structure. Credit enhancement for the class A1 notes has increased to 43.06% from 38.5% over the past year and to 30.4% from 27.5% for the class A2 notes.

However, the increased credit enhancement was not sufficient to fully eliminate the risk of interest shortfalls on the class B notes. Ratings in the highest rating categories should be able to meet timely payment of interest. While Fitch expects the asset manager to mitigate this possibility, it is reflected by the revision of the class B notes' Outlook to Negative.

The transaction exited its reinvestment period in October 2014 and since then can only reinvest unscheduled principal and proceeds from credit improved or credit impaired assets.

The portfolio's overall credit quality has improved, as represented by the weighted average rating factor, which has decreased to 26.4 from 27.6, while the 'CCC' and below bucket increased to 3.8% from 3.2%. Overall, portfolio concentration increased over the past year as a result of amortisation. Exposure to peripheral European assets increased to 13.8% from 9.7%, represented by Italy and Spain and the largest industry now represents 11.9% of the portfolio, up from 10.3%.

All coverage tests are passing with healthy cushions and none of the portfolio profile tests are failing. However, the maximum weighted average maturity test is failing by five months.

RATING SENSITIVITIES
In its stress tests Fitch found that reducing the recovery rate by 25% or increasing the default rate by 25% could lead to the downgrade of class A1, A2 and B notes by up to one category.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
Loan-by-loan data provided by Deutsche Bank as at 05 October 2015
Transaction reporting provided by Deutsche Bank as at 05 October 2015.