NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A notes issued by LCM XII Limited Partnership (LCM XII) at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
The affirmation is based on the stable performance of the underlying portfolio since Fitch's last review and the stable credit enhancement available to the notes. As of the June 10, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there have been no defaults in the underlying portfolio to date.
The loan portfolio par amount plus principal cash is approximately $500.5 million, compared to the effective date target balance of $500 million. The minimum required weighted average spread (WAS) trigger is 3.9%, versus a current WAS of 4.0%, as reported by the trustee. Additionally, the weighted average rating factor remains at 'B+/B' since the last review. Fitch considers 2.2% of the collateral assets to be rated in the 'CCC' category versus 2.1% at the last review, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 89.3% 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 notes have 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.
The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', portions of the portfolio being placed on Rating Watch Negative, overcollateralization (OC) or interest coverage (IC) test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of LCM XII, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
LCM XII is an arbitrage, cash flow collateralized loan obligation (CLO) managed by LCM Asset Management LLC. The transaction remains in its reinvestment period, which is scheduled to end in October 2016. 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.
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 October 2012, no updated cash flow modeling was completed. The WAS, WAL, and PCM outputs are similar to the levels at closing. The current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 45.7% and 41.6%, respectively, versus an RDR of 61.0% and RRR of 37.2% for the Fitch stressed portfolio at closing.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Oct. 30, 2012. 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.
Fitch has affirmed the following rating:
--$321,250,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, or E notes or the LP Certificates. The class X notes paid in full on the January 2013 distribution date.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings were sourced from periodic servicer reports, the transaction documents and the public domain.
Applicable Criteria & 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);
--'LCM XII Limited Partnership New Issuer Report' (Oct. 30, 2012);
--'LCM XII Limited Partnership Representations and Warranties New Issue Appendix' (Oct. 30, 2012).
Applicable Criteria and Related Research:
LCM XII Limited Partnership: Appendix
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Counterparty Criteria for Structured Finance and Covered Bonds
LCM XII Limited Partnership