NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed five classes of notes, as well as the exchangeable combination notes, issued by Mercer Field CLO LP (Mercer Field CLO). A complete list of rating actions follows at the end of the release.
KEY RATING DRIVERS
The rating affirmations are based on the stable credit enhancement levels on the transaction, stable performance of the portfolio and the cushions available in Fitch's cash flow modeling results. As of the Nov. 14, 2014 report, the transaction continues to pass all of its coverage and primary collateral quality tests. Fitch's cash flow analysis also indicates each class of notes is passing all 12 interest rate and default timing scenarios at or above their current rating level.
The loan portfolio par amount plus principal cash is approximately $1.07 billion, compared to the balance of $1.06 billion in the last review in Nov. 2013, resulting in relatively stable credit enhancement levels. The weighted average spread (WAS) of the portfolio has tightened to 4.7% from 5.2% in the last review, relative to a minimum WAS trigger of 4.6%, as reported by the trustee. The portfolio is invested in 98.0% senior secured loans and 2.0% senior secured bonds, and approximately 88.9% of the portfolio has strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher.
No assets have defaulted in the portfolio and the weighted average rating factor still remains in the 'B/B-' range. The trustee currently reports the 'CCC' concentration at 1.6% of the portfolio versus a maximum allowance of 7.5%, based on Fitch's ratings and S&P ratings. However, Fitch considers 9.6% of the collateral assets to be rated in the 'CCC' category, according to Fitch's Issuer Default (IDR) Equivalency Map, versus 19.3% of the loan portfolio in the last review. Of the 9.6% 'CCC' concentration, approximately 5.5% is not publicly rated.
The ratings of the Mercer Field CLO notes and combination notes are not expected to experience rating volatility in the near term, supporting their Stable Outlooks.
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 Mercer Field CLO, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
Mercer Field CLO is an arbitrage cash flow collateralized loan obligation (CLO) that is managed by Guggenheim Partners Investment Management, LLC (GPIM). The transaction remains in its reinvestment period, which is scheduled to end in December 2016.
The exchangeable combination notes consist of underlying components from the class C, class D and class E notes, the unrated income notes and a Fannie Mae (FNMA) principal-only strip scheduled to mature in May 2030 (the underlying specified security).
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. These default and recovery levels were then utilized in Fitch's cash flow model under various combinations of default timing and interest rate stress scenarios, as described in the report 'Global Rating Criteria for Corporate CDOs'. The cash flow model was customized to reflect the transaction's structural features.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Jan. 18, 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 available by accessing the reports and links indicated below.
Fitch has affirmed the following ratings:
--$556,500,000 class A notes at 'AAAsf'; Outlook Stable;
--$154,350,000 class B notes at 'AAsf'; Outlook Stable;
--$78,750,000 class C notes at 'Asf'; Outlook Stable;
--$65,100,000 class D notes at 'BBBsf'; Outlook Stable;
--$60,480,000 class E notes at 'BBsf'; Outlook Stable;
--$316,902,042 exchangeable combination notes at 'BBB-sf'; Outlook Stable.
Fitch does not rate the income notes.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, GPIM, 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);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014)
--'Mercer Field CLO LP New Issue Report' (Jan. 18, 2013);
--'Mercer Field CLO LP -- Appendix' (Jan. 18, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds
Mercer Field CLO LP -- Appendix