Fitch Affirms 6 Classes of Baker Street CLO II Ltd./Corp.
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed six classes of notes issued by Baker Street CLO II Ltd./Corp. (Baker Street CLO II) as follows:
--$240,597,600 class A-1 notes at 'AAAsf'; Outlook Stable;
--$26,733,067 class A-2 notes at 'AAAsf'; Outlook Stable;
--$20,100,000 class B notes at 'AAsf'; Outlook Stable;
--$21,000,000 class C notes at 'BBBsf'; Outlook Stable;
--$15,900,000 class D notes at 'BBsf'; Outlook Stable;
--$11,402,275 class E notes at 'Bsf'; Outlook Stable.
KEY RATING DRIVERS
The rating actions are based on the credit enhancement available to the rated notes and the stable performance of the underlying portfolio. Since Fitch's last review in April 2013, approximately $24.6 million of class A-1 and A-2 (collectively, class A) notes have paid down from proceeds received from portfolio amortization. As of the Jan. 8, 2014 trustee report, the transaction continues to pass its overcollateralization (OC) and interest coverage (IC) tests, and the current weighted average spread (WAS) is 3.33%, compared to a trigger of 2.65%.
Fitch's analysis focused on a performing portfolio balance of $314.2 million held across 108 borrowers and $35.3 million in principal collections. The weighted average rating factor of the performing portfolio has remained relatively stable at 'B+/B'. Fitch currently considers 8.4% of the assets to be rated 'CCC+' or below in the performing portfolio versus 8.9% at the last review, based upon Fitch's Issuer Default Rating (IDR) Equivalency Map. There are nine defaulted assets in the portfolio totaling approximately $13.5 million. The performing portfolio is composed of approximately 90.8% senior secured loans and approximately 9.2% second lien loans and unsecured obligations.
The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration (including assets being downgraded to 'CCC'), or portions of the portfolio being placed on Rating Watch Negative or Outlook Negative, or OC or IC test breaches. The notes' performance may also be sensitive to the increasing concentration risks from reinvestment activity and/or portfolio amortization.
The transaction had exited its reinvestment period in October 2012, but the manager still has the ability to reinvest unscheduled principal proceeds and proceeds from credit risk sales, pursuant to the satisfaction of certain investment criteria. Among the criteria, such reinvestment cannot cause the weighted average maturity of the portfolio assets to be extended beyond the weighted average maturity of the portfolio assets prior to such reinvestment, and the weighted average life (WAL) of any purchased asset must be equal or less than the WAL of the asset being replaced. Fitch expects reinvestment activity to decrease in the future, as the WAL of the portfolio continues to decrease and investment options become more limited.
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 default timing and interest rate stress scenarios.
While Fitch's cash flow analysis of the current portfolio indicates higher passing rating levels for the class C, D and E notes in all 12 interest rate and default timing scenarios, the current recommended ratings appropriately reflect the risk profile of the transaction given the ability to reinvest proceeds from unscheduled principal proceeds and credit risk sales. The class C, D and E notes remain subordinate to more senior classes and are the most susceptible to portfolio concentration risks and increased defaults. The Stable Outlooks reflect Fitch's expectations of continued performance of the notes in the near term.
Baker Street CLO II is a cash flow collateralized loan obligation (CLO) that closed on Sept. 15, 2006 and is managed by Seix Investment Advisors (Seix), a wholly owned subsidiary of Ridgeworth Capital Management, Inc. (Ridgeworth). The sale of Ridgeworth to Lightyear Capital LLC from Suntrust Banks, Inc. is expected to take place in the second quarter of 2014 and will have no material effect on the ratings of the notes.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2014).
Applicable Criteria and Related Research:
Criteria for Interest Rate Stresses in Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria