NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed two classes of notes issued by CENT CLO 16, L.P. as follows:
--$245,000,000 class A-1a notes at 'AAAsf', Outlook Stable;
--$10,000,000 class A-1b notes at 'AAAsf', Outlook Stable.
KEY RATING DRIVERS
The ratings affirmation is based on the stable performance of the underlying portfolio since the transaction's inception in September 2012 and the stable credit enhancement available to the notes. As of the July 24, 2013 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests.
The loan portfolio par amount plus principal cash is approximately $402.9 million, compared to the effective date target par balance of $400 million. Although one asset comprising 0.5% of the portfolio defaulted in July 2013, the class A-1 notes credit enhancement level increased to 36.4% from 36.1% at closing. This is based on Fitch's adjusted collateral balance of $401.8 million, which applied a haircut to the defaulted asset par amount. Fitch currently considers 12.6% of the collateral assets to be rated in the 'CCC' category versus 15.5% in the indicative portfolio at closing; this includes 4.1% considered 'CCC' because they do not carry public ratings. The average credit quality of the portfolio has remained at 'B/B-' since closing. The portfolio is invested in 98.6% first priority senior secured loans and 1.4% second lien and unsecured loans. The minimum required weighted average spread (WAS) trigger is 2.5%, versus a current WAS of 4.54%, and the maximum weighted average life (WAL) trigger is 6.5 years, versus a current WAL of 5.02 years.
The transaction remains in its reinvestment period, which is scheduled to end in August 2016.
The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', or portions of the portfolio being placed on Rating Watch Negative or Outlook Negative, OC or IC test breaches, breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of CENT CLO 16, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue report published on Sept. 25, 2012.
CENT CLO 16 is an arbitrage, cash flow collateralized loan obligation (CLO) that closed on Sept. 13, 2012 and is managed by Columbia Asset Management.
This review was conducted under the framework described in the report 'Global Rating Criteria for Corporate CDOs' using the Portfolio Credit Model (PCM) for projecting future default and recovery levels for the underlying portfolio. Given the stable performance of the deal since closing in September 2012, there was no updated cash flow modeling completed. The WAS, WAL, and PCM outputs are all in line with the levels at closing. The current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 51.1% and 41.1% respectively, versus an RDR of 52.5% and RRR of 40.2% for the indicative portfolio at closing. The A-1 notes were able to withstand defaults of 66.4% at closing.
A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is available by accessing the reports and links indicated below.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013)
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013)
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013)
--'Cent CLO 16 New Issuer Report' (Sept. 25, 2012)
--'Cent CLO 16 Representations and Warranties New Issue Appendix' (Sept. 25, 2012).
Applicable Criteria and Related Research:
Cent CLO 16, L.P./Corp.
Cent CLO 16, L.P./Corp. -- Appendix
Counterparty Criteria for Structured Finance and Covered Bonds
Global Structured Finance Rating Criteria