S&P: WhiteHorse VII Ltd. Ratings Affirmed On Six Classes
Today's rating actions follow our review of the transaction's performance using data from the July 13, 2016, trustee report. The transaction is scheduled to remain in its reinvestment period until November 2017.
Since the transaction's effective date, the trustee reported collateral portfolio's weighted average life has decreased to 4.29 years from 5.53 years. 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 November 2013 effective date report. Specifically, the amount of defaulted assets increased to $5.59 million (1.42% of the aggregate principal balance) as of July 2016, from zero as of the effective date report. In addition, the level of assets rated 'CCC+' and below increased to $34.75 million (8.84% of the aggregate principal balance) from zero over the same period. As per the transaction's documents, the trustee, for purpose of calculating overcollateralization (O/C) ratios, haircuts the portion of the 'CCC' rated collateral in excess of the prescribed limit. The current haircut of $2.40 million is about 0.61% of the performing assets. These factors contributed to a decline in the O/C ratios since the effective date:The senior class A O/C ratio was 134.73%, down from 137.56%.The class A O/C ratio was 121.69%, down from 124.25%. The class B-1L O/C ratio was 114.58%, down from 116.99%.The class B-2L O/C ratio was 108.20%, down from 110.29%.The class B-3L O/C ratio was 105.46%, down from 107.68%.However, even with the decline in credit support, all coverage tests are currently passing and are above the minimum requirements.
Although our cash flow analysis points to higher ratings for the class A-2L, A-3L, B-1L, B-2L, and B-3L notes, our rating actions consider the decline in the portfolio's credit quality and increase in defaults. In addition, the ratings reflect 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 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.