Fitch Assigns LCM IX Limited Partnership Final Ratings

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to the class A notes of LCM IX Limited Partnership (LCM IX):

--$429,000,000 class A notes 'AAAsf/LS2'; Outlook Stable.

The ratings are based upon the quality, seniority, and composition of the portfolio of assets along with credit enhancement available to the class A notes through subordination, the application of excess spread, and other structural protection features. In Fitch's view, the ratings of the class A notes are unlikely to be adversely affected by foreseeable levels of defaults. The notes perform strongly in Fitch's cash flow modeling scenarios, as displayed by their resilience in stressed scenarios featuring default levels of up to 58.5% and average recoveries as low as 38.9% in an 'AAA' stress scenario. Fitch's stress and rating sensitivity analysis is discussed in the new issue report that will be available shortly at 'www.fitchratings.com'.

LCM IX is an arbitrage, cash flow collateralized loan obligation (CLO) that will be managed by LCM Asset Management LLC (LCM). The net proceeds from the note issuance will be invested in an approximately $650 million portfolio of primarily senior secured leveraged loans. At closing, approximately 78.4% of the portfolio has been purchased, with the remainder identified but not yet traded. Fitch anticipates the portfolio to have an average credit quality of 'B' following settlement of all identified investments.

LCM IX has a three-year reinvestment period, scheduled to end in July 2014. During the reinvestment period discretionary trading is permitted up to 20% of the portfolio balance per year. Sales of defaulted, credit-risk and credit-improved securities are permitted at any time, including after the reinvestment period. The manager also has the ability to reinvest unscheduled principal proceeds after the reinvestment period, including sales proceeds from the disposal of credit-risk loans. Loans purchased after the reinvestment period are generally required to have ratings at least equal to the rating of the disposed loan, and average maturities no later than that of the disposed loan. All reinvestments are subject to collateral quality and coverage tests, as well as portfolio concentration limitations.

The concentration limitations outlined in the transaction documents include a 7.5% maximum for assets rated 'CCC+' or below (as defined by S&P) and a 10% total maximum exposure to second lien loans and bonds. The transaction is covenanted to a maximum weighted average life of four years after the reinvestment period, while the initial portfolio weighted average life may not exceed seven years. The asset manager has the flexibility to select the required levels of several collateral quality tests, such as weighted average spread and weighted average life.

The transaction documents permit the re-pricing of any class of notes to occur at any time after the non-call period (ending January 2013) upon the majority vote of the LP Certificate holders. Prior to effecting any re-pricing, holders of the applicable class(es) will be given the option to continue holding their notes at the reduced spread over LIBOR or to receive the redemption price (par plus accrued and unpaid interest) and surrender their notes. Fitch expects to review the terms of any re-pricing and consider what, if any, impact it may have on the ratings of the notes.

The class A notes have been assigned a Stable Outlook due to Fitch's expectation of steady performance through anticipated levels of default and the various forms of credit enhancement available to the notes. The class A notes have also been assigned a Loss Severity (LS) rating, which indicates the tranche's potential loss severity given default as evidenced by the ratio of tranche size to the base-case loss expectation for the collateral. The LS rating should always be considered in conjunction with the long-term credit rating of the notes. For more information on LS ratings, see Fitch's 'Criteria for Structured Finance Loss Severity Ratings'.

Additional information is available at 'www.fitchratings.com'.

The sources of information used to assess these ratings were the transaction documents provided by the originator, Merrill Lynch, Pierce, Fenner & Smith, Inc. and the public domain.

Applicable Criteria & Related Research:

--'Global Structured Finance Rating Criteria' (Aug 13, 2010);

--'Global Rating Criteria for Corporate CDOs' (July 5, 2010);

--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 17, 2010);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 21, 2011);

--'Counterparty Criteria for Structured Finance Transactions' (March 14, 2011);

--'Criteria for Structured Finance Loss Severity Ratings' (Feb. 17, 2009).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547326

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=537494

Global Criteria for Cash Flow Analysis in CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=557485

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605426

Counterparty Criteria for Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605425

Criteria for Structured Finance Loss Severity Ratings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=426038

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