Fitch Affirms Avery Point II CLO, Limited at 'Aaasf'; Outlook Remains Stable

NEW YORK--()--Fitch Ratings has affirmed the $304 million class A notes issued by Avery Point II CLO, Limited (Avery Point II) at 'AAAsf'. The Rating Outlook remains Stable.

KEY RATING DRIVERS

The rating affirmation on the class A notes is based on the stable performance of the underlying portfolio since the transaction's closing in June 2013 and the stable credit enhancement available to the notes. As of the May 7, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there are currently no defaults in the underlying portfolio.

The performing loan portfolio par amount plus principal cash is approximately $501.8 million, compared to the effective date target par balance of $500 million, resulting in a slight increase in credit enhancement for the class A notes. The weighted average spread (WAS) is reported to be 4.34%, relative to a trigger of 3.85% and the weighted average rating factor of the portfolio is at 'B'/'B-'. The trustee reports 1.7% 'CCC' assets versus a maximum allowance of 5%, based upon S&P ratings. Fitch currently considers 5.4% of the portfolio (excluding cash) to be rated in the 'CCC' category based on Fitch's Issuer Default Rating (IDR) Equivalency Map. The portfolio is diversified with 148 obligors, and invested in 99.4% senior secured assets and 0.6% second lien loans. Additionally, approximately 91.5% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.

The Stable Outlook reflects the expectation that the class A note has a sufficient level of credit protection to withstand potential deterioration in the credit quality of the portfolio, based on the results of the Fitch sensitivity analysis described below.

RATING SENSITIVITIES

The rating of the notes may be sensitive to the following: asset defaults, portfolio migration, coverage test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of Avery Point II, 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 transaction since closing, there was no updated cash flow modeling completed. The WAS, WAL and PCM outputs have remained relatively 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 52.3% and 41.3%, respectively, versus an RDR of 60.7% and RRR of 34.4% for the stressed portfolio at closing. Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Aug. 12, 2013. 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.

Avery Point II CLO, Limited is an arbitrage, cash flow collateralized loan obligation (CLO) that closed on June 20, 2013 and is managed by Sankaty Advisors, LLC. The transaction remains in its reinvestment period, which is scheduled to end on July 17, 2017.

Fitch has affirmed the following rating:

Avery Point II CLO, Limited

--Class A at 'AAAsf'; Outlook Stable.

Fitch does not rate the class B-1, B-2, C, D, E or F notes or the Subordinated Notes.

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

The information used to assess this rating was sourced from periodic servicer reports, note valuation reports, and the public domain.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);

--'Avery Point II CLO, Limited New Issue Report' (Aug. 12, 2013);

--'Avery Point II CLO, Limited Representations and Warranties New Issue Appendix' (Aug. 12, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715492

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Avery Point II CLO, Limited/Corp.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712785

Avery Point II CLO, Limited/Corp. - Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=713311

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833417

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Shashi Srikantan, +1-212-908-0393
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings, Inc.
Primary Analyst
Shashi Srikantan, +1-212-908-0393
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com