S&P: Dryden XXII Senior Loan Fund Ratings Raised On Four Classes; One Rating Affirmed
Dryden XXII Senior Loan Fund completed a refinancing of the class A, B, and C notes in January 2014, at which time the B-1 and B-2 notes were combined into class B-R. The class D notes were not included in the refinancing.
Today's rating actions follow our review of the transaction's performance using data from the June 30, 2016 trustee report.
The upgrades reflect the transaction's $15.95 million in paydowns to the class A-1R notes. This has increased the reported class A overcollateralization (O/C) ratio when compared to the January 2014 refinancing.
The class A O/C ratio improved to 137.11% from 136.15%.The class B O/C ratio declined to 122.63% from 122.70%.The class C O/C ratio declined to 115.77% from 116.26%.The class D O/C ratio declined to 110.34% from 111.13%.While the O/C ratios have declined slightly during the same period for classes B, C, and D, they have improved since the transaction's effective date in January 2012, and it is expected that they will continue to increase as principal proceeds are received and used to pay down the balance of the senior notes.
The transaction has also benefited from collateral seasoning, with the reported weighted average life decreasing to 3.80 years from 5.23 years in January 2014. This seasoning, combined with stable credit quality, has decreased the overall credit risk profile, which, in turn, provided more cushion to the tranche ratings.
On a standalone basis, the results of the cash flow analysis indicated a higher rating on the class B-R, C-R, and D notes. However, because the transaction currently has some exposure to 'CCC' rated collateral obligations and loans from companies in the energy and commodities sectors (which have come under significant pressure from falling oil and commodity prices in the past year), we limited the upgrade on some classes to offset future potential credit migration in the underlying collateral.
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.