NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A notes issued by Race Point VII CLO, Ltd./Corp. (Race Point VII) 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 in October 2013 and the stable credit enhancement available to the notes. As of the Sept. 25, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there are no defaults in the underlying portfolio.
The loan portfolio par amount plus principal cash is approximately $605.4 million, compared to the effective date target balance of $600 million. The minimum required weighted average spread (WAS) trigger is 4.05%, versus a current WAS of 4.19%, as reported by the trustee. Additionally, the weighted average rating factor is at 'B,' improved from last review and closing level of 'B/B-'. Fitch considers 3% of the collateral assets to be rated in the 'CCC' category versus 6% at the last review, and 7.7% at closing, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 91.1% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.
The 'AAAsf' loss level projected by Fitch's Portfolio Credit Model (PCM) remains below that from the Fitch stressed portfolio at closing. Specifically, the current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) are 48.1% and 40.5%, respectively, versus an RDR of 60.6% and an RRR of 36.8% for the stressed portfolio at closing.
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.
RATING SENSITIVITIES
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 Race Point 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 Nov. 30, 2012.
Race Point VII is an arbitrage, cash flow collateralized loan obligation (CLO) managed by Sankaty Advisors, LLC. The transaction remains in its reinvestment period, which is scheduled to end in November 2016.
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 November 2012, no updated cash flow modeling was completed.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Nov. 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:
--$381,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E or 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);
--'Race Point VII CLO, Limited/Corp. New Issue Report' (Nov. 30, 2012);
--'Race Point VII CLO, Limited/Corp. - Appendix' (Nov. 30, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
Global Rating Criteria for Corporate CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Race Point VII CLO, Limited/Corp.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695628
Race Point VII Limited/Corp. -- Appendix
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695629
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=901354
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