NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 20 classes of notes issued by Guggenheim Private Debt Fund Note Issuer, LLC (Guggenheim PDFNI). A full list of rating affirmations follows at the end of this release.
KEY RATING DRIVERS
The rating affirmations are based on the credit enhancement (CE) levels and the cushions available to the notes in Fitch's cash flow analysis. The April 6, 2015 trustee report indicated that all collateral quality tests, concentration limitations, and coverage tests were in compliance. Defaults increased to 6.7% from 1.7% of the total par balance (including cash) of the portfolio, but the expected par losses resulting from defaults were mitigated by reinvested excess spread and trading gains over the last year. Fitch's cash flow analysis also indicates each class of notes continues to pass all 12 interest rate and default timing scenarios above their current rating levels.
The portfolio is composed of approximately $1.17 billion of private debt investments (PDIs) issued by 27 performing obligors, $88 million in notional of three defaulted issuers, and approximately $62.5 million of principal cash. At last review, the $1.31 billion portfolio included $1.24 billion issued by 39 performing obligors, $18.1 million of notional of one defaulted issuer, and $71.3 million in principal cash. The current portfolio consists entirely of private debt investments, whereas approximately 11% of the loan portfolio was considered as broadly syndicated loans at the last review. The current portfolio remains within the parameters of the Fitch stressed portfolio, which was constructed using the maximum collateral limitations allowed by the transaction documents at the time of the last funding.
The weighted average rating of the performing portfolio (excluding cash) remains at 'B-/CCC'. Approximately 50.7% of the performing portfolio is considered to have strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, versus 62.2% at the last review. The transaction generates a significant amount of excess spread, with the weighted average spread (WAS) reported at 9.97%, relative to the trigger level of 4.25%. Since closing, approximately $63.8 million of excess spread has been redirected, at the manager's discretion, to the principal collection account for investment in collateral, and the unrated first-loss notes (class E1 and E2 notes) and limited liability company (LLC) membership interests have received a total of $97.6 million of interest proceeds.
The Stable Outlooks reflect the expectation that the 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, significant negative credit migration, lower than historically observed recoveries for defaulted assets, and breaches of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of Guggenheim PDFNI, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
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. The cash flow model was customized to reflect the transaction's structural features.
Guggenheim PDFNI (the issuer) is a collateralized loan obligation (CLO) transaction that closed in July 2012 and is managed by Guggenheim Partners Investment Management, LLC (GPIM). The transaction had issued multiple series of notes on the first, second and third funding dates in July 2012, October 2012 and March 2013, respectively. The fourth funding and fifth funding dates occurred in April 2014 and May 2014, respectively. No funding dates remain for the transaction and all notes from each series are cross-collateralized by the portfolio of PDIs and broadly syndicated loans (when applicable).
Initial Key Rating Drivers and Rating Sensitivity are further described in the commentary published on July 12, 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:
-- $292,499,994 class A notes, series A-1, 'Asf', Outlook Stable;
-- $44,999,995 class A notes, series A-2, 'Asf', Outlook Stable;
-- $90,900,011 class A notes, series A-3, 'Asf', Outlook Stable;
-- $77,407,894 class A notes, series A-4, 'Asf', Outlook Stable;
-- $41,842,106 class A notes, series A-5, 'Asf', Outlook Stable;
-- $48,749,993 class B notes, series B-1, 'BBBsf', Outlook Stable;
-- $7,499,995 class B notes, series B-2, 'BBBsf', Outlook Stable;
-- $15,150,012 class B notes, series B-3, 'BBBsf', Outlook Stable;
-- $12,901,316 class B notes, series B-4, 'BBBsf', Outlook Stable;
-- $6,973,684 class B notes, series B-5, 'BBBsf', Outlook Stable;
-- $60,124,994 class C notes, series C-1, 'BBsf', Outlook Stable;
-- $9,249,995 class C notes, series C-2, 'BBsf', Outlook Stable;
-- $18,685,011 class C notes, series C-3, 'BBsf', Outlook Stable;
-- $15,911,623 class C notes, series C-4, 'BBsf', Outlook Stable;
-- $8,600,877 class C notes, series C-5, 'BBsf', Outlook Stable;
-- $40,624,994 class D notes, series D-1, 'Bsf', Outlook Stable;
-- $6,249,996 class D notes, series D-2, 'Bsf', Outlook Stable;
-- $12,625,010 class D notes, series D-3, 'Bsf', Outlook Stable;
-- $10,751,096 class D notes, series D-4, 'Bsf', Outlook Stable;
-- $5,811,404 class D notes, series D-5, 'Bsf', Outlook Stable;
Fitch does not rate the class E1 notes (series E1-1, E1-2, E1-3, E1-4, E1-5), E2 notes (series E2-1, E2-2, E2-3, E2-4, E2-5) and the limited liability company (LLC) membership interests (series 1, 2, 3, 4, 5).
Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess these ratings were the transaction documents provided by the manager, GPIM, and the public domain. The manager provided pertinent financial information related to the PDIs to Fitch's leveraged finance group, which used the information to establish credit opinions on these borrowers.
Applicable Criteria & Related Research:
--'Fitch Rates Guggenheim Private Debt Fund Note Issuer, LLC' (July 12, 2012);
--'Guggenheim Private Debt Fund Note Issuer, LLC (New Issue Appendix); (July 12, 2012);
--'Global Structured Finance Rating Criteria' (March 31, 2015);
--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);
--'Counterparty Criteria for Structured Finance Transactions and Covered Bonds' (May 14, 2014);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Dec. 19, 2014).
Applicable Criteria and Related Research:
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868
Counterparty Criteria for Structured Finance Transactions - Effective Mar. 14, 2011 to Mar, 12, 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=605425
Global Rating Criteria for Corporate CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268
Guggenheim Private Debt Fund Note Issuer, LLC
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683931
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984991
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.