S&P: Gallatin CLO V 2013-1 Ltd. Ratings Affirmed On Eight Classes
Today's rating actions follow our review of the transaction's performance using data from the August 2016 trustee report. The transaction is scheduled to remain in its reinvestment period until July 2017.
Since the transaction's effective date, the trustee-reported collateral portfolio's weighted average life has decreased to 4.58 years from 5.48 years. Because time horizon weighs heavily into default probability, a shorter weighted average life positively affects the collateral pool's creditworthiness. 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 assets rated 'CCC+' and below since the September 2013 effective date report. The level of assets rated 'CCC+' and below increased to $11.70 million from $8.49 million over the same period.
According to the August 2016 trustee report that we used for this review, the overcollateralization (O/C) ratios for each class have exhibited slight declines since the September 2013 trustee report, which we used for our January 2014 rating affirmations:The class A/B O/C ratio was 133.7%, down from 134.1% in September 2013. The class C O/C ratio was 120.7%, down from 121.1% in September 2013.The class D O/C ratio was 113.5%, down from 113.8% in September 2013.The class E O/C ratio was 108.1%, down from 108.40% in September 2013.The Class F O/C ratio was 105.8%, down from 106.1% in September 2013.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 decline in the weighted average life and positive credit migration of the collateral portfolio. However, any significant deterioration in these metrics could negatively affect the deal in the future, especially the junior tranches. As such, the affirmed ratings reflect our belief that the credit support available is commensurate with the current rating levels.
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.