CHICAGO--(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 actions follows at the end of this release.
KEY RATING DRIVERS
The rating affirmations are based on credit enhancement (CE) levels and cushions available to the notes in Fitch's cash flow analysis. As of the April 2016 trustee report, the transaction continues to pass all coverage tests and collateral quality tests. Defaults decreased marginally to 6.1% from 6.7% of the total portfolio par balance (including cash) at last review. Since the transaction close in July 2012, four energy issuers have defaulted. On a combined basis realized and unrealized losses as a percentage of the portfolio par balance (including cash) as of the fifth funding date amount to approximately 11.6%. This was partially offset with about 4.9% of excess spread reinvested since close.
The portfolio is composed of approximately $923.5 million of private debt investments (PDIs) issued by 22 performing obligors, $179.7 million of syndicated bank loans (SBLs) issued by 27 performing obligors, $77.4 million in notional of two defaulted issuers, and approximately $85.2 million of principal cash. The portfolio at last review was 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. 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 in May 2014.
The weighted average rating of the performing portfolio (excluding cash) has improved to 'B/B-' as compared to 'B-/CCC' at last review. Approximately 64.1% of the performing portfolio is considered to have strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, versus 50.7% at the last review. The transaction generates a significant amount of excess spread, with the weighted average spread (WAS) reported at 8.47%, relative to the trigger level of 4.25%.
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.
This review was conducted under the framework described in the report 'Global Rating Criteria for CLOs and 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
Fitch's cash flow analysis indicates each class of notes continues to pass all nine interest rate and default timing scenarios above their current rating levels. However, since the transaction is still in reinvestment period, Fitch is not upgrading the rated notes at this review.
RATING SENSITIVITIES
The ratings of the notes may be sensitive to asset defaults, significant negative credit migration, and lower than historically observed recoveries for defaulted assets. 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. 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.]
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, third, fourth and fifth funding dates in July 2012, October 2012, March 2013, April 2014 and May 2014, respectively. No funding dates or commitments remain outstanding for the transaction. All notes from each series are cross-collateralized by the portfolio of PDIs and SBLs (when applicable). The transaction will exit its reinvestment period in July 2016.
DUE DILIGENCE USAGE
No third-party due diligence was reviewed in relation to this rating action.
Fitch has affirmed the following ratings:
--$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.
Sources of Information:
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
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
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004495
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004495
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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