OREANDA-NEWS. S&P Global Ratings today raised its credit ratings on all classes of notes in Laurelin II B. V. (see list below).

Today's upgrades follow our analysis of the transaction using data from the August 2016 trustee report, and the application of our relevant criteria (see "Related Criteria").

We conducted our cash flow analysis to determine the break-even default rate (BDR) for each rated class of notes at each rating level. The BDR represents our estimate of the maximum level of gross defaults, based on our stress assumptions, that a tranche can withstand and still fully repay the noteholders. We gave credit to an aggregate collateral amount of €195.6 million, down from €425 million at our previous review, and used the reported weighted-average spread of 4.39%, and the weighted-average recovery rates calculated in accordance with our criteria for corporate collateralized debt obligations (CDOs) (see "Ratings Raised In European Cash Flow CDO Transaction Laurelin II Due To Improving Credit Quality; Other Ratings Affirmed," published on Aug. 8, 2014, and "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Sept, 17, 2015). We applied various cash flow stresses using our standard default patterns and timings for each rating category assumed for each class of notes, combined with different interest stresses as outlined in our corporate CDO criteria.

The portfolio's credit quality has improved since our previous review. The proportion of assets that we consider to be defaulted has decreased to €5.6 million from €9.4 million, and the proportion of assets that we rate in the 'CCC' category ('CCC+', 'CCC', and 'CCC-') has also decreased to €9.3 million from €19.2 million.

The issuer entered into options agreements with Barclays Bank PLC (A-/Negative/A-2). According to our current counterparty criteria, in cases where the replacement language in the derivative agreements is in line with any of our previous counterparty criteria, the maximum achievable rating on a tranche is equal to the counterparty's long-term issuer credit rating (ICR) plus one notch, unless we apply additional stresses in our cash flow analysis to capture that risk (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013).

Therefore, in our cash flow analysis, we have tested additional scenarios by assuming that there are no options in the transaction for all classes of notes that have a rating higher than the counterparty's long-term ICR plus one notch, 'A (sf)'.

The results of our analysis indicate that the available credit enhancement for all classes of notes is commensurate with higher ratings than those currently assigned. We have therefore raised our ratings on all classes of notes in this transaction.

Laurelin II is a multiple-currency cash flow CDO transaction, backed primarily by leveraged loans to speculative-grade corporate firms. The transaction closed on July 11, 2007, and is managed by GoldenTree Asset Management L. P. The reinvestment period ended in 2014.