S&P: Tryon Park CLO Ltd. Ratings Affirmed On Six Classes
Today's rating actions follow our review of the transaction's performance using data from the July 2016 trustee report. The transaction is scheduled to remain in its reinvestment period until July 2017.
Since the transaction's effective date, the trustee reported the collateral portfolio's weighted average life has decreased to 4.73 years from 5.61 years. This seasoning has decreased the overall credit risk profile, which, in turn, provided more cushion to the tranche ratings. In addition, the number of obligors in the portfolio has increased during this period, which contributed to the portfolio's increased diversification.
The transaction has experienced an increase in both defaults and assets rated 'CCC+' and below since the September 2013 effective date report. Specifically, the amount of defaulted assets increased to $0.89 million from none as of the September effective date report. The level of assets rated 'CCC+' and below increased to $19.09 million (3.88% of the aggregate principal balance) from none over the same period.
The increase in defaulted assets, as well as other factors, has affected the level of credit support available to all tranches, as seen by the decline in the overcollateralization (O/C) ratios:The class A O/C ratio was 132.57%, down from 133.67%.The class B O/C ratio was 121.11%, down from 122.11%.The class C O/C ratio was 113.58%, down from 114.52%.The class D O/C ratio was 107.72%, down from 108.62%.Even with the decline in credit support, all coverage tests are currently passing and are above the minimum requirements.
Overall, the increase in defaulted assets and assets rated 'CCC+' and below has been largely offset by the decline in the weighted average life. However, any significant deterioration in these metrics could negatively affect the deal in the future, especially the junior tranches. As such, the affirmed ratings reflect our belief that the credit support available is commensurate with the current rating levels.
Although our cash flow analysis indicates higher ratings for the class A-2, B, C, and D notes, our rating actions consider additional sensitivity runs that considered the exposure to specific distressed industries and allowed for volatility in the underlying portfolio given that the transaction is still in its reinvestment period.
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.