OREANDA-NEWS. S&P Global Ratings today raised its ratings on the class B, C, and D notes from Carlyle High Yield Partners IX Ltd. and removed them from CreditWatch, where they were placed with positive implications on May 25, 2016. At the same time, we affirmed our 'AAA (sf)' ratings on the class A-1, A-2, and A-3 notes from the same transaction (see list).

Today's rating actions follow our review of the transaction's performance using data from the July 1, 2016, trustee report.

Although the transaction exited its reinvestment period in September 2013, the collateral manager has continued to reinvest post-reinvestment period principal proceeds the transaction received from credit-risk, credit-improved, or prepaid collateral obligations, in line with the transaction documents. On the June 13, 2016, payment date, the collateral manager reinvested $13.89 million of the available $56.80 million, while the remaining $42.92 million was used to pay down the class A-1 and A-2 notes. Since the November 2014 trustee report, which we used for our December 2014 rating actions, post-reinvestment period principal amortization has resulted in $161.80 million in collective paydowns to the class A-1 and A-2 notes, leaving them with approximately 39.82% and 24.77%, respectively, of their original face values at issuance remaining.

The upgrades reflect these paydowns, as well as an improved reported senior overcollateralization ratio test, which increased to 168.95% in July 2016 from 135.20% in the November 2014 trustee report.

The collateral portfolio's credit quality has slightly improved since our last rating actions. Collateral obligations with ratings in the 'CCC' category have decreased, with $16.22 million reported as of the July 2016 trustee report compared with $26.54 million as of the November 2014 trustee report. Over the same period, the par amount of defaulted collateral has decreased to $4.12 million from $4.15 million. In addition, the transaction has benefited from a drop in the weighted average life due to the underlying collateral's seasoning, with 3.07 years reported as of the July 2016 trustee report compared with 4.26 years reported at the time of our 2014 rating actions.

The affirmations reflect our view that the credit support available is commensurate with the current rating levels.

The transaction has a structural mechanism that, when breached, diverts excess interest proceeds (that would otherwise be available to pay the subordinated noteholders) to pay down the rated notes in an amount equal to the loss replenishment amount. The mechanism is considered breached when the loss replenishment amount is a positive value. The loss replenishment amount is calculated as the par amount of the cumulative losses that have occurred in the underlying transactions portfolio since the transaction's closing date minus the sum of each of the following: cumulative gains that have occurred in the underlying transaction portfolio since the closing date, the cumulative amount of interest proceeds that had previously been diverted in connection with this mechanism on all prior payment dates, and a loss tolerance threshold. This structural mechanism had been breached in the past and, as a result, approximately $42.86 million in excess interest proceeds were used to either reinvest into additional collateral obligations or to pay down the principal balance of the rated notes. As of June 2016, the test is passing.

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. 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 and/or ultimate principal to each of the rated tranches. The results of the cash flow analysis demonstrated, in our view, that all of the rated outstanding classes have adequate credit enhancement available at the rating levels associated with these rating actions.

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.