NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A notes issued by LCM XI Limited Partnership (LCM XI) at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
The ratings affirmation reflects the stable performance of the underlying portfolio since the last review in May 2013 and the stable credit enhancement available to the notes. As of the March 10, 2014 trustee report, the transaction continues to pass all of its coverage and collateral quality tests.
The loan portfolio par amount plus principal cash is approximately $470.7 million, compared to the collateral balance of $471.1 million at the last review, causing the credit enhancement level to the class A notes to remain relatively unchanged. Fitch currently considers 4.8% of the collateral assets to be rated in the 'CCC' category based on Fitch's Issuer Default Rating (IDR) Equivalency Map, compared to 3.3% at the last review. Second lien loans represent 2.3% of the current portfolio, as compared to a permitted 10% limitation, with the remaining portfolio being invested in first priority senior secured loans.
The Stable Outlook reflects Fitch's expectation that the class A note has sufficient level of credit protection to withstand potential deterioration in the credit quality of the portfolio, based on the results of Fitch's sensitivity analysis described below.
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 carrying a Negative Outlook, overcollaterization (OC) or interest coverage (IC) test breaches, breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of LCM XI, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
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 and since the last review in May 2013, 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 45.8% and 41.9% respectively, versus an RDR of 50.4% and RRR of 40.9% for the indicative portfolio at closing.
Initial Key Rating Drivers and Rating Sensitivity are further described in the new issue report published on June 8, 2012, and available at 'www.fitchratings.com'. A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is also available by accessing the reports and links indicated below.
LCM XI is an arbitrage, cash flow collateralized loan obligation (CLO) that closed on May 24, 2012 and is managed by LCM Asset Management. The transaction remains in its reinvestment period, which is scheduled to end in April 2016.
Fitch has affirmed the following rating:
LCM XI Limited Partnership:
--$307,000,000 class A at 'AAAsf'; Outlook Stable.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from periodic trustee reports, note valuation 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);
--'LCM XI Limited Partnership New Issue Report' (June 8, 2012);
--'LCM XI Limited Partnership Representations and Warranties New Issue Appendix' (June 8, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Counterparty Criteria for Structured Finance and Covered Bonds
LCM XI Limited Partnership
LCM XI Limited Partnership - Appendix