NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A-1A and A-1B notes issued by Magnetite VII, Limited/Corp. (Magnetite VII) at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
The ratings affirmation is based on the stable performance of the underlying portfolio since Fitch's last review and the credit enhancement available to the notes. As of the July 2, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests.
The loan portfolio par amount plus principal cash is approximately $602 million, compared to the effective date target par balance of $600 million, causing the class A-1A and A-1B notes credit enhancement level to increase to 40.2% and 38.2%, respectively, from 40.1% and 38.1% at last review. Fitch currently considers 7.4% of the collateral assets to be rated in the 'CCC' category versus 7.5% in the indicative portfolio at closing. The average credit quality of the portfolio has maintained at 'B/B-'. The portfolio is invested in 94.6% senior secured loans, 5.3% second lien loans and 0.1% unsecured loans and bonds. The minimum required weighted average spread (WAS) trigger is 4.15%, versus a current WAS of 4.38%, and the maximum weighted average life (WAL) trigger is 6.47 years, versus a current WAL of 5.37 years.
The Stable Outlook reflects the expectation that the class A-1A and A-1B notes 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 transaction remains in its reinvestment period, which is scheduled to end in January 2017.
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, OC or IC test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of Magnetite VII, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Jan. 18, 2013.
Magnetite VII is an arbitrage, cash flow collateralized loan obligation (CLO) that closed on Dec. 20, 2012 and is managed by BlackRock Financial Management, Inc.
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 December 2012, 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 48.9% and 39.5%, respectively, versus an RDR of 62.9% and RRR of 35.3% for the Fitch stressed portfolio at closing.
A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is available by accessing the reports and links indicated below.
Fitch has affirmed the following ratings:
Magnetite VII, Limited/Corp.:
--Class A-1A notes at 'AAAsf'; Outlook Stable;
--Class A-1B notes at 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2A, A-2B, B, C, D, 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);
--'Magnetite VII, Limited New Issue Report' (Jan. 18, 2013);
--'Magnetite VII, Representations and Warranties' (Jan. 18, 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
Magnetite VII, Limited/Corp. -- Appendix
Magnetite VII, Limited New Issue Report