NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A-1a notes and class A-1b notes of ALM VIII, Ltd./LLC (ALM VIII). The Rating Outlook on each class of notes remains Stable.
KEY RATING DRIVERS
The affirmation is based on the stable performance of the underlying portfolio since closing in December 2013 and the stable credit enhancement available to the notes. As of the October 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there have been no defaults to date in the underlying portfolio.
The loan portfolio par amount plus principal cash is approximately $601.5 million, compared to the effective date target balance of $600 million. The minimum required weighted average spread (WAS) trigger is 3.65%, versus a current WAS of 4.79%, as reported by the trustee. Additionally, the weighted average rating factor is at 'B/B-' (in line with the level at closing). Fitch considers 3.5% of the collateral assets to be rated in the 'CCC' category versus 9.6% in the indicative portfolio at closing, based on Fitch's IDR Equivalency Map. Currently, 86.3% 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-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 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 ALM VIII, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
ALM VIII is an arbitrage cash flow collateralized loan obligation (CLO) that is managed by Apollo Credit Management (CLO), LLC (Apollo Credit). Net proceeds from the issuance of notes were used to purchase a portfolio of approximately $600 million of primarily senior secured leveraged loans. The CLO has a four-year reinvestment period scheduled to end in January 2018.
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 transaction since closing in December 2013, no updated cash flow modeling was completed. The current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 52.1% and 36.7%, respectively, versus an RDR of 54.3% and RRR of 39.8% for the indicative portfolio at closing.
Initial Key Rating Drivers and Rating Sensitivity are further detailed in Fitch's Aug. 5 New Issue Report. 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 and Outlooks:
--$270,000,000 class A-1a senior secured floating rate notes, 'AAAsf'; Outlook Stable;
--$120,000,000 class A-1b senior secured floating rate notes, 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2a, A-2b, B, C, D or E notes and preferred shares.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, and the public domain.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Global Rating Criteria for Corporate CDOs' (Jul. 25, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'ALM VIII, Ltd./LLC' New Issue Report (Aug. 5, 2014);
--'ALM VIII, Ltd./LLC - Appendix' (Aug. 5, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Counterparty Criteria for Structured Finance and Covered Bonds
ALM VIII, Ltd./LLC
ALM VIII, LTD./LLC -- Appendix