S&P: Vibrant CLO II Ltd. Ratings Raised On Four Classes; Three Ratings Affirmed
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.
The upgrades primarily reflect an increase in credit support, as well as collateral seasoning since our rating affirmations in January 2014 following the transaction's effective date.
Additionally, par gain in the underlying portfolio since the effective date has led to an increase in the overcollateralization (O/C) ratios from the December 2013 trustee report:The class A O/C ratio increased to 137.13% from 134.69%.The class B O/C ratio increased to 123.41% from 121.21%.The class C O/C ratio increased to 115.87% from 113.80%.The class D O/C ratio increased to 110.00% from 108.04%.The class E O/C ratio increased to 106.26% from 104.37%.During the same period, the reported weighted average life has decreased to 4.97 years from 5.54 years. In addition, the number of issuers in the portfolio has increased, and this diversification has contributed to the portfolio's credit quality. The collateral seasoning, combined with the increase in credit support, has decreased the overall credit risk profile, which, in turn, provided more cushion to the tranche ratings.
Although there has been a modest increase in both defaulted assets and assets rated in the 'CCC' category, this factor is offset by the decline in the weighted average life and increase in the collateral portfolio's credit support, both of which have lowered the credit risk profile.
Although our cash flow analysis indicated higher ratings for the class B, D, and E notes, our rating actions considered the cushion at the higher ratings and additional sensitivity runs that reflected the exposure to specific distressed industries and allowed for volatility in the underlying portfolio because the transaction is still in its reinvestment period.
The affirmations of the class A-1, D, and E notes reflect our belief that the credit support available is commensurate with the current rating levels.
Our review of the transaction relied, in part, upon a criteria interpretation with respect to our May 2014 criteria, "CDOs: Mapping A Third Party's Internal Credit Scoring System To Standard & Poor's Global Rating Scale," which allows us to use a limited number of public ratings from other Nationally Recognized Statistical Rating Organizations (NRSROs) to assess the credit quality of assets not rated by S&P Global Ratings. The criteria provide specific guidance for the treatment of corporate assets not rated by S&P Global Ratings, while the interpretation outlines the treatment of securitized assets.
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.