OREANDA-NEWS. S&P Global Ratings today assigned its preliminary ratings to the class A-R, B-1-R, B-2-R, and C-R senior secured floating-rate replacement notes from Dryden XXV Senior Loan Fund, a collateralized loan obligation (CLO) originally issued in 2012 that is managed by Prudential Investment Management Inc. (see list). The replacement notes will be issued via a proposed supplemental indenture.

The preliminary ratings reflect our opinion that the credit support available is commensurate with the associated rating levels. The replacement notes are expected to be issued at a lower spread over LIBOR than the original notes (except for the class B-2-R notes, which are issued as floating-rate and are being issued to replace the current fixed-rate class B-2 notes).

On the Oct. 17, 2016, refinancing date, the proceeds from the issuance of the replacement notes are expected to redeem the original notes. At that time, we anticipate withdrawing the ratings on the original notes and assigning 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.

Our review of this transaction included a cash flow analysis, based on the portfolio and transaction as reflected in the August 2016 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 or ultimate principal, or both, to each of the rated tranches.

On a standalone basis, the results of the cash flow analysis currently indicate a lower rating on class E than its current rating level, and will continue to indicate a lower rating after the proposed refinancing. We believe that as the transaction enters its amortization period following the end of its reinvestment period (scheduled to end January 2017), it may begin to pay down the rated notes sequentially, which, all else remaining equal, will begin to increase the overcollateralization levels. In addition, because the transaction currently has minimal exposure to 'CCC' rated collateral obligations, no exposure to long-dated assets (i. e., assets maturing after the CLO's stated maturity), and there has been a decline in defaulted collateral in the underlying portfolio since our June 2016 rating actions, we believe it is not currently exposed to large risks that would impair the current rating on the notes. In line with this, no change is anticipated to the rating at this time.