Fitch Affirms 14 CLOs from Various Vintage; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed 18 tranches from 14 collateralized loan obligations (CLOs). The rating action report, titled 'Fitch Affirms 14 CLOs From Various Vintages,' dated April 22, 2016, details the individual rating actions for each rated CLO. It can be found on Fitch's website at 'www.fitchratings.com' by performing a title search or by using the link below. For further information and transaction research, please refer to 'www.fitchratings.com'.
KEY RATING DRIVERS
The affirmations on all classes included in this review are based on the sufficient credit enhancement (CE) available to the notes.
Eleven out of 14 reviewed CLOs have experienced some deterioration in the credit quality of their portfolios, as reflected by the increase in Fitch weighted average rating factor (WARF) since Fitch's last rating action. The accompanying Rating Action Report details each reviewed CLO's exposure to loans of issuers with Fitch's Issuer Default Rating (IDR) equivalent at 'CCC' or lower.
According to the most recent trustee reports, Babson CLO Ltd, 2014-1, Babson CLO Ltd 2015-1, Madison Park Funding XII, Ltd, and OHA Credit Partners X, Ltd are now applying an excess 'CCC/Caa' haircut. Ten out of 14 CLOs reported at least one defaulted asset in their most recent reports available for this review.
Further, weighted average spread has come down in all 14 CLOs primarily due to the impact of increasing LIBOR on underlying loans with LIBOR floors. Fitch believes that the observed spread reduction in the underlying portfolios has a limited rating impact for senior notes.
Despite negative performance trends, all reviewed transactions continue to have positive cushions between the notes' CE levels and Portfolio Credit Model's (PCM) AAAsf Rating Loss Rates. Fitch's PCM calculates Rating Default Rates and Rating Loss Rates for all rating stresses, as detailed in the report 'Global Rating Criteria for CLOs and Corporate CDOs' which describes Fitch's framework for analysing CLOs.
Given the positive cushions, no updated cash flow modelling was completed for this review. In addition, these positive cushions were considered to be sufficient at this point to buffer all reviewed notes against potential further moderate degrees of deterioration. Fitch believes that the Stable Outlook remains an appropriate assessment of the notes' rating stability in the near-term future.
Please see the Rating Action Report linked below for more performance metrics on individual CLOs in this review.
The ratings of the notes are sensitive to significant negative credit migration and asset defaults and lower than historically observed recoveries for defaulted assets. Fitch conducted rating sensitivity analysis on the closing date of each CLO, incorporating increased levels of defaults and reduced levels of recovery rates among other sensitivities.
The transactions included in this rating action originated in 2013 - 2015 and are managed by 3i Debt Management US LLC, American Capital CLO Management, LLC, Apollo ST Fund Management LLC, Babson Capital Management LLC, BlackRock Financial Management, Inc., Carlyle Investment Management L.L.C., CF H-BSL Management LLC, Credit Suisse Asset Management, L.L.C., Highbridge Principal Strategies, LLC, LCM Asset Management LLC, and Oak Hill Advisors, L.P. All CLOs remain in their respective reinvestment periods.
DUE DILIGENCE USAGE
No third-party due diligence was reviewed in relation to this rating action.