NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to the class X and class A notes of LCM XIII Limited Partnership (LCM XIII):
--$3,250,000 class X notes 'AAAsf'; Outlook Stable;
--$322,500,000 class A notes 'AAAsf'; Outlook Stable.
KEY RATING DRIVERS:
The ratings are based upon the quality, seniority, and composition of the portfolio of assets along with credit enhancement available to the notes through subordination, the application of excess spread, and other structural protection features. In Fitch's view, the ratings of the class X and A notes are unlikely to be adversely affected by foreseeable levels of defaults.
RATING SENSITIVITIES:
The class X and A notes perform strongly in Fitch's cash flow modeling scenarios, as displayed by their resilience in stressed scenarios featuring default levels of up to 100% and 61.4%, respectively, and with average recoveries as low as 35.3% in an 'AAAsf' stress scenario. Fitch's stressed portfolio and rating sensitivity analysis will be discussed in the new issue report that will be available shortly at 'www.fitchratings.com'.
LCM XIII 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 $500 million portfolio of primarily senior secured leveraged loans. The transaction features portfolio concentration limitations and degrees of credit enhancement available to the class X and class A notes that are consistent with recent CLO issuance. At closing, approximately 80% 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 XIII has a four-year reinvestment period, scheduled to end in January 2017. During the reinvestment period, discretionary sales are 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 and sales proceeds from the disposal of credit risk obligations after the reinvestment period, subject to certain conditions.
The portfolio concentration limitations include a maximum 7.5% allowance for assets rated 'CCC+' or below (as defined by S&P) and a 10% total maximum exposure to second lien loans, unsecured loans, and bonds. The transaction's initial weighted average life covenant of 8.0 years steps down with the passage of time. As with most other recent CLOs rated by Fitch the asset manager has the flexibility to select the required levels of various collateral quality tests, such as the minimum weighted average spread and weighted average recovery rate.
The class X and 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.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
The sources of information used to assess these ratings were the transaction documents and other materials provided by the arranger, Morgan Stanley & Co. LLC, and the public domain.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).
Applicable Criteria and Related Research
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923
Global Rating Criteria for Corporate CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683910
Global Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518
Criteria for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535
Counterparty Criteria for Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678938
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