NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed five classes of notes issued by Hempstead CLO LP (Hempstead CLO). A completed list of rating actions follows at the end of the release.
KEY RATING DRIVERS
The affirmations are based on the stable performance of the underlying portfolio since the transaction's last review in December 2014, the sufficient credit enhancement available to the notes, and the cushions available in the CLO's cash flow modeling results. As of the October 2015 trustee report, the transaction continues to pass all coverage tests and collateral quality tests, and there has only been one default (0.2% of the total underlying portfolio including principal cash) to date. Fitch's cash flow analysis also indicates each class of notes is passing all nine interest rate and default timing scenarios at or above their current rating levels.
The loan portfolio par amount plus principal cash is approximately $654.8 million, compared to the balance of $654.1 million at the last review, resulting in relatively stable credit enhancement levels. The weighted average spread (WAS) of the portfolio has tightened to 4.7% from 4.8%, relative to a minimum WAS trigger of 4.5%, as reported by the trustee. The portfolio is invested in 95.2% senior secured loans and 4.8% second lien loans, and approximately 90.7% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.
The Stable Outlook on each class of notes of Hempstead CLO reflects the expectation that the notes have sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio.
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 a rating sensitivity analysis on the closing date of Hempstead CLO, 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 Rating Action Commentary published on Dec. 26, 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 also available by accessing the reports and links indicated below.
Hempstead 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 January 2018.
This review was conducted under the framework described in the report 'Global Rating Criteria for CLOs and Corporate CDOs' using Fitch's Portfolio Credit Model (PCM) to project 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.
DUE DILIGENCE USAGE
No third party due diligence was reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
--$383,500,000 class A-1 notes at 'AAAsf'; Outlook Stable;
--$47,320,000 class A-2 notes at 'AAsf'; Outlook Stable;
--$69,500,000 class B notes at 'Asf'; Outlook Stable;
--$31,100,000 class C notes at 'BBB-sf'; Outlook Stable;
--$26,700,000 class D notes at 'BBsf'; Outlook Stable.
Fitch does not rate the income notes.
Additional information is available at www.fitchratings.com.
Sources of Information:
The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, GPIM, and the public domain.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds (pub. 19 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868
Global Rating Criteria for CLOs and Corporate CDOs - Amended (pub. 12
Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873664
Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes
(pub. 09 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863276
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Related Research
Hempstead CLO LP -- Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=728375
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=994343
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=994343
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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