NEW YORK--(BUSINESS WIRE)--(This is an amended version of a press release originally published on July 27, 2016. It removes the Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds criteria.)
Fitch Ratings has affirmed the class A-1A notes and assigned a 'AAAsf' rating to the class A-1B-R notes of Carlyle Global Market Strategies CLO 2014-3, Ltd./LLC (CGMS 2014-3). The Rating Outlook on each class of notes is Stable.
KEY RATING DRIVERS
Today, CGMS 2014-3 issued refinancing obligations as class A-1B-R 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. In conjunction with the refinancing, certain provisions of the indenture have been amended by the First Supplemental Indenture. The changed provisions from the First Supplemental Indenture will have no impact on the rating of the refinancing notes.
Class A-1B-R notes were issued in the same amount and have identical terms as the previously outstanding class A-1B notes, except that the spread over LIBOR has been reduced. The spread over LIBOR on class A-1B notes was 1.335% and was scheduled to step up to 1.75% after the July 2016 payment date and again to 2.00% after the July 2017 payment date. The class A-1B-R notes will accrue interest at a rate of LIBOR plus 1.45% for the remainder of the transaction.
This reduction to the cost of funding to the CLO is viewed as a credit positive and no other material changes were made to the transaction documents, capital structure or underlying portfolio as a result of the refinancing. The transaction continues to display stable performance since the last review on Aug. 12, 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 $802.9 million, as of the June 22, 2016 trustee report. All collateral quality tests, concentration limitations, and coverage tests are reported to be in compliance. Second lien loans represent 3.6% of the current portfolio, as compared to a permitted 10% limitation. The current weighted average spread (WAS) is 4.16% versus a minimum WAS trigger of 3.95% and 3.55% WAS assumed for the Fitch stressed portfolio at closing. Additionally, the Fitch weighted average rating factor is 'B' (32.4) as compared to the Fitch stressed portfolio at closing of 'B/B-' (35.45). Fitch currently considers 6% of the performing collateral balance (excluding cash) to be rated in the 'CCC' category based on Fitch's Issuer Default Rating (IDR) Equivalency Map.
The Stable Outlook on the class A-1A and A-1B-R notes reflects the expectation that each class has sufficient levels of 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 rating sensitivity analysis on the closing date of CGMS 2014-3, 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 Nov. 24, 2014.
DUE DILIGENCE USAGE
No third-party due diligence was reviewed in relation to this rating action.
Fitch has assigned the following rating:
--$155,000,000 class A-1B-R notes 'AAAsf; Outlook Stable.
Fitch has affirmed the following rating:
--$155,000,000 class A-1A notes at 'AAAsf; Outlook Stable.
Fitch does not rate the A-2, B, C-1, C-2, D-1, D-2, E or the subordinated notes.
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, Citigroup Global Markets Inc.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)
https://www.fitchratings.com/site/re/884963
Global Rating Criteria for CLOs and Corporate CDOs - 9 June 2016 to 28 July 2016 (pub. 09 Jun 2016)
https://www.fitchratings.com/site/re/882840
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010847
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010847
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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