Fitch Upgrades 2 Classes and Affirms 2 Classes of Emporia Preferred Funding I, Ltd./Corp.

NEW YORK--()--Fitch Ratings has upgraded two classes and affirmed two classes of notes issued by Emporia Preferred Funding I, Ltd./Corp. (Emporia I). The rating actions are as follows:

--$21,039,146 class C notes upgraded to 'AAAsf' from 'Asf'; Outlook to Stable from Positive;

--$24,360,000 class D notes upgraded to 'Asf' from 'BBBsf'; Outlook to Positive from Stable;

--$8,000,000 class E-1 notes affirmed at 'BBsf'; Outlook to Positive from Stable;

--$5,195,000 class E-2 notes at affirmed 'BBsf'; Outlook to Positive from Stable.

KEY RATING DRIVERS

The rating actions are based on the significant increase in credit enhancement available to the notes and the improved performance of the underlying portfolio since the transaction's last rating action in December 2012. Since the last rating action, the transaction has received a significant amount of principal proceeds from the amortization of the portfolio, redeeming the class A and B (class B-1 and B-2) notes in full and paying down an additional $3.3 million in class C principal. As of the Nov. 2, 2013 trustee report, the transaction continues to have ample cushion in all its overcollateralization (OC) and interest coverage (IC) tests.

Fitch currently considers no assets to be rated 'CCC+' or below in the performing portfolio versus 7.2% at the last review and the weighted average rating factor of the performing portfolio improved to 'B' from 'B/B-'. According to the trustee report, there are two defaulted obligors in the portfolio totaling approximately $1 million and the current weighted average spread (WAS) is 3.74%, compared to a trigger of 3.5%. Additionally, Fitch's analysis focused on a performing portfolio balance of $73.3 million held across 30 borrowers and $6.9 million in principal collections.

RATING SENSITIVITIES

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 assigned a Negative Outlook, OC or IC test breaches.

Emporia I is a cash flow collateralized loan obligation (CLO) that closed on Oct. 12, 2005 and is managed by Ivy Hill Asset Management, a portfolio management company of Ares Capital Corporation. Emporia I has a portfolio primarily composed of U.S. middle market loans, approximately 83.54% of which are senior secured positions and approximately 16.46% of which are second lien loans and structured finance assets. The transaction exited its reinvestment period in October 2011.

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. These default and recovery levels were then utilized in Fitch's cash flow model under various default timing and interest rate stress scenarios.

While Fitch's cash flow analysis indicates higher passing rating levels for the class D and class E-1 and E-2 notes (collectively, the class E notes) in all 12 interest rate and default timing scenarios, the current recommended ratings appropriately reflect the risk profile of the remaining portfolio. The class D and E notes remain subordinate to the class C notes and the class D and E notes are the most susceptible to portfolios concentration risks. The Positive Outlook on the class D and E notes reflects Fitch's expectations of improved performance of the notes in the near term.

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);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);

--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (June 12, 2013);

--'Global Rating Criteria for Structured Finance CDOs' (Sept. 12, 2013).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=811858

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Contacts

Fitch Ratings
Primary Surveillance Analyst:
Christine Choo, +1-212-908-0603
Director
One State Street Plaza
New York, NY 10004
or
Committee Chairperson:
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Surveillance Analyst:
Christine Choo, +1-212-908-0603
Director
One State Street Plaza
New York, NY 10004
or
Committee Chairperson:
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com