S&P: ACAS CLO 2013-1 Ltd. Ratings Affirmed On Seven Classes
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 April 2017.
Since the transaction's effective date, the trustee-reported collateral portfolio's weighted average life has decreased to 4.4 years from 5.6 years. This seasoning has decreased the overall credit risk profile, which, in turn, provided more cushion to some of the tranche ratings. 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 July 2013 effective date report. Specifically, the amount of defaulted assets increased to $1.98 million (0.5% of the aggregate principal balance) as of July 2016, from zero as of the July 2013 effective date report. The level of assets rated 'CCC+' and below increased to $13.38 million (3.35% of the aggregate principal balance) from zero over the same period.
According to the July 2016 trustee report that we used for this review, the overcollateralization (O/C) ratios for each class have remained relatively stable since the July 2013 trustee report, which we used for our January 2014 rating affirmations:The class A/B O/C ratio was 134.00%, up from 133.95%.The class C O/C ratio was 122.90%, up from 122.87%. The class D O/C ratio was 115.10%, down from 115.12%.The class E O/C ratio was 109.30%, down from 109.32%.The class F O/C ratio was 106.10%, down from 106.13%.Although our cash flow analysis points to higher ratings for the class B-1, B-2, C, and D notes, our rating actions consider the increase in the defaults and decline in the portfolio's credit quality. In addition, the ratings reflect additional sensitivity runs that allowed for volatility in the underlying portfolio given that the transaction is still in its reinvestment period.
The cash flow results also indicated a lower rating for the class F notes, but we view the overall credit seasoning as an improvement and also considered the relatively stable O/C ratios that currently have significant cushion over their minimum requirements. However, any increase in defaults and/or par losses could lead to potential negative rating actions on the class F notes in the future.
The affirmations of the ratings reflect our belief that the credit support available is commensurate with the current rating levels.
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.