NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A-1a and A-1b notes issued by CENT CLO 16, L.P. (CENT 16) 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 July 24, 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 loan portfolio par amount plus principal cash is approximately $403.6 million, compared to the effective date target balance of $400 million. The minimum required weighted average spread (WAS) trigger is 2.5%, versus a current WAS of 4.2%, as reported by the trustee. Additionally, the weighted average rating factor is at 'B,' slightly improved from the last review level of 'B/B-'. Fitch considers 3.1% of the collateral assets to be rated in the 'CCC' category based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 92.7% 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-1a and A-1b 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 CENT 16, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
CENT 16 is an arbitrage, cash flow collateralized loan obligation (CLO) managed by Columbia Management Group. The transaction remains in its reinvestment period, which is scheduled to end in August 2016. Discretionary sales are permitted at any time, with a limit of up to 25% of the portfolio balance per year. Sales of defaulted and credit-risk securities are permitted at any time, including after the reinvestment period, as are sales of credit-improved securities (subject to certain restrictions). 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 September 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 47.1% and 41.2%, respectively, versus an RDR of 60.6% and RRR of 38.3% for the Fitch stressed portfolio at closing.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Sept. 25, 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 ratings:
--$245,500,000 class A-1a notes 'AAAsf'; Outlook Stable;
--$10,000,000 class A-1b notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2, B, C, D, or the LP certificates.
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);
--'CENT CLO 16, L.P. New Issue Report' (Sept. 25, 2012);
--'CENT CLO 16, L.P. - Appendix' (Sept. 25, 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
Cent CLO 16, L.P./Corp.
Cent CLO 16, L.P./Corp. -- Appendix