Fitch Affirms One Class of Notes and Assigns Ratings to ALM VIII, Ltd. Refinancing Obligations

NEW YORK--()--Fitch Ratings has affirmed the class A-1a notes and assigned an 'AAAsf' rating to the class A-1b loans and A-1bL notes of ALM VIII, Ltd./LLC (ALM VIII). The Rating Outlook on each class of debt is Stable.

KEY RATING DRIVERS

Today, ALM VIII issued refinancing obligations as class A-1b loans and class A-1bL notes, and applied the net issuance proceeds thereof to redeem the existing class A-1b notes at par (plus accrued interest). No other classes of notes were refinanced.

Class A-1b loans were issued in the same amount and have the same terms as the previously outstanding class A-1b notes, except that the spread has been reduced. The spread over LIBOR on class A-1b notes was 1.65% and was scheduled to step up to 1.95% in July 2016 for the life of the transaction. The class A-1b loans will accrue interest at a rate of LIBOR plus 1.65% from the January 2016 payment date through today and will accrue interest at a rate of LIBOR plus 1.55% for the remainder of the collection period for the April 2016 payment date and thereafter.

Class A-1bL notes were issued with a $0 balance and have the same terms as the class A-1b loans. Class A-1b loans can be converted, in whole or in part, to class A-1bL notes if the class A-1b lender exercises a conversion option.

The amendment also added provisions to address compliance with the Volcker Rule, prohibiting bonds, senior secured notes and other non-loan assets, including letters of credit, from the portfolio.

The overall reduction in the cost of the liabilities is viewed as a credit positive and no other material changes were made to the capital structure or underlying portfolio as a result of the refinancing. The transaction continues to display stable performance since the last review on Nov. 17, 2015. As a result, cash flow model analysis was not conducted for this review. Fitch has determined that the ratings on the refinancing obligations shall be assigned at the same rating level as the original notes. Correspondingly, the class A-1a notes are affirmed at their current rating.

The loan portfolio par amount plus principal cash is approximately $600.7 million, as of the current trustee report. All collateral quality tests, concentration limitations, and coverage tests are in compliance, and there is one $2.0 million defaulted asset in the portfolio. The current weighted average spread (WAS) is 4.59% versus a minimum WAS trigger of 4.05%, compared to 3.55% assumed for the stressed portfolio at closing. Additionally, the Fitch weighted average rating factor is 'B/B-' (34.98) as compared to the stressed portfolio at closing date of 'B/B-' (35.70). Fitch currently considers 7.8% of the collateral assets to be rated in the 'CCC' category versus 4.8% at the last review, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Additionally, second lien loans represent 5.4% of the current portfolio, as compared to a permitted 10% limitation.

The Stable Outlook on the class A-1a and A-1bL notes and the class A-1b loans reflects the expectation that each class has sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio.

RATING SENSITIVITIES

The ratings of the debt 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.

Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Aug. 5, 2014. Fitch believes that the changed provisions from the First Supplemental Indenture will have no impact on the ratings of the refinancing obligations.

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.

DUE DILIGENCE USAGE

No third party due diligence was reviewed in relation to this rating action.

Fitch has assigned the following ratings:

--$120,000,000 class A-1b loans 'AAAsf'; Outlook Stable;

--$0 class A-1bL notes 'AAAsf'; Outlook Stable.

Fitch has affirmed the following rating:

--$270,000,000 class A-1a notes at 'AAAsf'; Outlook Stable.

Additional information is available at www.fitchratings.com.

Sources of Information:

The information used to assess these ratings was sourced from periodic trustee reports, the public domain and the arranger, Apollo Global Securities, LLC.

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

Global Rating Criteria for CLOs and Corporate CDOs (pub. 12 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873664

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

ALM VIII, LTD./LLC -- Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=739937

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1000039

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000039

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Erika Tsang, CFA
Director
+1-212-908-0817
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Derek Miller
Senior Director
+1-312-368-2076
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Erika Tsang, CFA
Director
+1-212-908-0817
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Derek Miller
Senior Director
+1-312-368-2076
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com