OREANDA-NEWS. S&P Global Ratings today assigned its preliminary ratings to the class A-1-R, B-1-R, B-2-R, C-R, and D-R fixed - and floating-rate replacement notes from Shackleton II CLO Ltd., a collateralized loan obligation (CLO) originally issued in November 2012 and managed by Alcentra NY LLC (see list). On the Oct. 20, 2016, refinancing date, we expect to affirm the rating on the class E notes, which are not being refinanced, from the same transaction. We also expect the class A-X notes to be paid down in full in accordance with their original amortization schedule on the refinancing date, at which time we will withdraw our rating on the notes.

The replacement notes are being issued via a proposed supplemental indenture, which outlines the terms of the replacement notes. Apart from the changes to the coupons on the replacement notes, there are no other changes to the original deal terms.

Today's rating actions follow our review of the transaction's performance using data from the Aug. 15, 2016, trustee report.

The preliminary ratings reflect our opinion that the credit support available is commensurate with the associated rating levels. The preliminary ratings on the replacement class B-1-R, B-2-R, and C-R notes are higher than the ratings on the original B-1, B-2, and C notes. The higher ratings on the replacement classes reflect our view of the stable collateral performance, the lower spreads on the refinanced notes, the portfolio's reduced weighted average life, and that the deal will start amortizing the senior notes once it exits its reinvestment period on the refinancing date.

The fixed - and floating-rate replacement notes are expected to be issued at a lower spread over LIBOR or coupon than the original notes (see table). On the Oct. 20, 2016, refinancing date, the proceeds from the issuance of the replacement notes are expected to redeem the original class A-1, B-1, B-2, C, D, and E notes. At that time, we anticipate withdrawing the ratings on the original notes and assigning final ratings to the replacement notes. However, if the refinancing doesn't occur, we may affirm the ratings on the original notes and withdraw our preliminary ratings on the replacement notes.

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 (see table). 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 or ultimate principal, or both, to each of the rated tranches.