OREANDA-NEWS. Fitch Ratings has affirmed the following notes issued by Madison Arbor Limited (Madison Arbor) at 'AAA':

--Series A, senior notes with a maturity of Dec. 17, 2018 (notes).

Madison Arbor is a special purpose trust established by BNP Paribas (BNPP) that purchases participations in collateralized loans made to regulated U.S. and Canadian closed-end funds (CEFs).

The affirmation is based on the review of a change in the composition of Madison Arbor's portfolio of loan participations.

KEY RATING DRIVERS

--High credit quality of underlying loans supported by margin policies including margin haircuts, minimum diversification standards, and asset eligibility criteria.
--While new loan participations may be added during the first four years (the revolving period), under the Indenture these are subject to a prior review by Fitch (Rating Agency Condition).
--Short exposure to market value risk at the underlying loan level if a CEF defaults under the terms of each credit agreement. Each underlying loan is secured by assets in a segregated account, which BNPP has a perfected security interest in and can liquidate over a short period of time (assumed seven business days maximum) in event of CEF default.
--Structural protections in the form of OC and interest coverage (IC) tests, each set at 105%.
--Regulatory constraints on CEF leverage by 1940 Investment Act's provisions and/or similar prospectus guidelines, which create incentives to keep senior debt leverage below 33% of total assets.
--Structural provisions such as transaction wind down provisions if BNPP is materially downgraded and incentives for borrowers to prepay the loans if BNPP undergoes material credit deterioration.
--Alignment of interests due to 5% subordination in the form of equity participations that are be held by BNPP.
--Capabilities of BNPP and Affiliates as Originator of the underlying loans to effectively manage margin policies and perform duties as secured lender.
--Fitch's Country Ceiling for Ireland is 'AAA'.

ANALYSIS OF MARGIN POLICIES
Fitch reviewed the terms of the credit agreement of each underlying loan and compared the haircuts, minimum diversification, and asset eligibility to the market value risk methodology in Fitch's criteria report Rating Closed-End Debt and Preferred Stock. Each segregated account was also tested for sufficiency of asset coverage at the rating level assigned to the notes using Fitch OC tests.

In addition to loan specific covenants, performance of the participations also benefits from the baseline protections of the 1940s Act (or similar prospectus guidelines) that keep senior borrowings below 33% at the time of issuance and during a normal operating environment. These baseline protections help leverage levels stay low and therefore help keep a significant amount of unencumbered assets available for the fund to post as margin in a market value stress.

For the common equity asset class, Fitch evaluated the margin policies using market value stresses that reflected the shorter exposure period of the transaction. In this case, Fitch analysed the shortened exposure period and concluded it would reduce market risk while not increasing liquidity risk substantially.

For all fixed income asset classes, Fitch evaluated the margin policies using the discount factors in the CEF Criteria which assume an exposure period of 45 business days versus the shorter anticipated exposure period of seven days for this transaction.

STRUCTURE

Fitch reviewed the legal structure of the transaction and found it met Fitch's applicable rating criteria. Two key structural elements of the transaction are wind down triggers based on the rating of BNPP (set at below 'BBB' and 'F2') and IC and OC tests. The IC test compares the interest from the participations minus amounts payable to the interest required to be paid on the notes. The OC test compares the principal balance of the loan participations plus trust deposits to the aggregate amount outstanding on the notes. To pass, both tests need to be greater than 105%. If either test is failing the trust cannot issue new notes and the trust cannot make equity distributions.

AGENTS

BNPP is the loan originator and servicer. Since 2008 BNPP has provided margin financing to 1940s Act funds. BNPP, through the New York Branch, is servicer of the loan participations. The trustee is US Bank National Association (rated 'AA-/F1+').

PERFORMANCE ANALYTICS

Fitch monitors the transaction regularly and as warranted by events with a review. Events that may trigger a review include, but are not limited to, the following:
--Any changes to the portfolio of loan participations;
--Downgrade of BNPP below 'BBB' and 'F2';
--OC or IC test breach;
--Future changes to Fitch's rating criteria.

The notes indenture requires prior to any changes to the portfolio of loan participations, the trust must ensure the change will not result in a change in the rating assigned to the notes.

Surveillance analysis is conducted on the basis of the then-current portfolio of loan participations.

RATING SENSITIVITIES

Fitch performed stress scenarios to assess the transaction's structural protections to mitigate market value risk consistent with an 'AAA' rating. Due to the terms of the margin policies of each loan's credit agreement, expected unencumbered assets at each fund and subordination at the SPV, these scenarios had minimal rating impact.

Ratings assigned to the notes may be sensitive to material changes in collateral credit quality, concentration or market risk profile posted by each underlying fund. Purchase of loan participations that are deemed to have a credit profile lower than 'AAA' would cause the ratings on the notes to be downgraded. The ratings may also be sensitive to a downgrade of BNPP below 'BBB' and 'F2', or significant breaches to the OC or IC tests. A material adverse deviation from Fitch guidelines for any key rating driver could cause ratings to be lowered by Fitch.