S&P: Nine Carlyle Global Market Strategies CLO 2013-3 Ltd. Ratings Affirmed
Today's rating actions follow our review of the transaction's performance using data from the July 25, 2016, trustee report. The transaction is scheduled to remain in its reinvestment period until July 2017.
Since the transaction's effective date in October 2013, the trustee-reported collateral portfolio's weighted average life has decreased to 4.62 years from 5.72 years. This seasoning, combined with improved credit quality, has decreased the overall credit risk profile, which, in turn, provided more cushion to the tranche ratings.
However, the transaction has also experienced an increase in defaults and assets rated 'CCC+' and below since the effective date. Specifically, the amount of defaulted assets increased to $1.62 million (0.34% of the aggregate principal balance) as of July 2016, from zero as of the effective date report. The level of assets rated 'CCC+' and below increased to $18.03 million (3.79% of the aggregate principal balance) from $3.64 million (0.73% of the aggregate principal balance) 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 since the effective date:The class A O/C ratio was 135.48%, down from 136.48%.The class B O/C ratio was 121.37%, down from 122.27%. The class C O/C ratio was 114.70%, down from 115.56%.The class D O/C ratio was 108.62%, down from 109.42%.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 has been largely offset by the collateral portfolio's decreased weighted average life and positive credit migration. However, any significant deterioration in these metrics could negatively affect the deal in the future, especially the junior tranches. As such, the affirmed class A-1A, A-1B, A-2A, A-2B, B, C, D, and E ratings reflect our belief that the credit support available is commensurate with the current rating levels.
Although our cash flow analysis indicated higher ratings for the classes A-2A, A-2B, B, C, and D notes, our rating actions consider additional sensitivity runs that allowed for volatility in the underlying portfolio given that the transaction is still in its reinvestment period.
On a stand-alone basis, the results of the cash flow analysis indicated a lower rating on the class E notes than today's rating action reflects. However, we affirmed the rating on class E after considering the margin of failure and the relatively minor decline in O/C ratios since the transaction's effective date. We also considered that the transaction will soon enter its amortization phase. As such, we expect the credit support available to the notes to increase as principal is collected and paydowns to the senior notes occur.
We affirmed our rating on the class P notes based on the current rating of the underlying zero coupon bond issued by Citigroup Inc. that backs the principal portion of the notes.
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.