OREANDA-NEWS. S&P Global Ratings today raised its rating on the class D notes from Black Diamond CLO 2005-2 Ltd., and affirmed its ratings on the class C, E-1, and E-2 notes. The ratings on the class D, E-1, and E-2 notes were removed from CreditWatch, where we had placed them with positive implications on May 25, 2016. In addition, we withdrew our ratings on the class A and B notes from the same transaction. (See list.)

Today's rating actions follow our review of the transaction's performance using data from the June 27, 2016 trustee report. On the July 7, 2016 payment date, principal proceeds were used to pay the remaining $30.0 million balance of the class A notes and the entire $75.0 million of the class B notes. As a result of the complete paydown, we are withdrawing our rating on the class A and B notes.

The upgrade of the class D notes reflects the transaction's $340.25 million in collective paydowns to the class A, B, and C notes since our September 2015 rating actions. These paydowns resulted in improved reported overcollateralization (O/C) ratios since the July 2015 trustee report, which we used for our previous rating actions:The class A/B O/C ratio improved to 322.70% from 175.48%.The class C O/C ratio improved to 193.67% from 143.50%.The class D O/C ratio improved to 140.07% from 122.19%.The class E O/C ratio improved to 122.38% from 113.39%. The affirmations on the class C, E-1, and E-2 notes reflect our view that the credit support available is commensurate with the current rating level.

Our ratings on the class D, E-1, and E-2 notes were affected by the application of the largest obligor default test from our corporate collateralized debt obligation criteria. The test is intended to address event and model risks that might be present in rated transactions. Despite cash flow runs that suggested higher ratings, the largest obligor default test constrained our rating on the class D notes at 'AA+' (sf), and our rating on the class E-1 and E-2 notes at 'BBB+ (sf)'. The top five largest obligors in the transaction currently make up more than 44% of the portfolio's performing collateral balance.

As of the June 2016 trustee report, the balance of collateral with a maturity date after the stated maturity of the transaction represented 10.66% of the portfolio. A CLO concentrated in long-dated assets could be exposed to market value risk at maturity because the collateral manager may have to sell long-dated assets for less than par to repay the CLO's subordinate rated notes when they mature (see "CDO Spotlight: The Relationship Between Long-Dated Assets And Market Value Risk In U. S. Cash Flow CLOs," published April 26, 2012). Our analysis took into account the potential market value and/or settlement related risk arising from the potential liquidation of the remaining securities on the transaction's legal final maturity.

We will continue to review whether, in our view, the ratings assigned to the notes remain consistent with the credit enhancement available to support them, and will take rating actions as we deem necessary.