NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A-1 notes, A-2 notes, and A loan issued by Sound Point CLO III, Ltd./Inc. (Sound Point III) at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
The affirmation is based on the stable performance of the underlying portfolio since the transaction's inception in August 2013 and the stable credit enhancement available to the notes. As of the July 3, 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 $481.8 million, compared to the effective date target balance of $481 million. The minimum required weighted average spread (WAS) trigger is 4%, versus a current WAS of 4.7%, as reported by the trustee. Additionally, the weighted average rating factor remains at 'B+/B'. Fitch currently considers 3.9% of the collateral assets to be rated in the 'CCC' category versus 5.6% in the indicative portfolio at closing, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 95.4% 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-1 notes, A-2 notes and A loan have sufficient levels 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 Sound Point III, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
Sound Point III is an arbitrage, cash flow collateralized loan obligation (CLO) managed by Sound Point Capital Management LP. Net proceeds from the issuance of the secured and subordinated notes were used to purchase a portfolio of primarily leveraged loans. The CLO's reinvestment period will end in July 2017.
The class A loan was issued at close and includes a conversion option to be converted into class A-2 notes. Once the option is exercised, the aggregate outstanding amount of the class A-2 notes will be increased by the principal amount of the class A loans and the class A loans shall no longer be outstanding. The class A-2 note balance continues to be $0. The conversion option may be exercised only once and no class A-2 notes may be converted into class A loans.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Oct. 22, 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.
Fitch has affirmed the following rating:
--$248,250,000 class A-1 notes at 'AAAsf'; Outlook Stable;
--$0 class A-2 notes at 'AAAsf'; Outlook Stable.;
--$50,000,000 A loan at 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C-1, C-2, D, E, or F notes or the subordinated notes.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'Sound Point CLO III, Ltd./Inc. New Issue Report' (Oct. 22, 2013);
--'Sound Point CLO III, Ltd./Inc. - Appendix' (Oct. 22, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Counterparty Criteria for Structured Finance and Covered Bonds
Sound Point CLO III, Ltd./Inc.
Sound Point CLO III, Ltd./Inc. -- Appendix