NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the class A-2 notes issued by Madison Park Funding XI, Ltd. (Madison Park XI) at 'AAAsf'. The Rating Outlook on the class remains Stable.
KEY RATING DRIVERS:
The affirmation is based on the stable performance of the underlying portfolio since the transaction's inception in September 2013 and the sufficient credit enhancement available to the notes. As of the Aug. 7, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there have been no defaults in the underlying portfolio to date.
The loan portfolio par amount plus the principal collections cash amount is approximately $506.3 million, compared to the effective date target balance of $500 million, resulting in a slight increase in credit enhancement level for the class A notes. The minimum required weighted average spread (WAS) trigger is 4.3%, versus a current WAS of 4.6%, as reported by the trustee. Additionally, the weighted average rating factor has remain unchanged in the 'B/B-' range since inception. The trustee currently reports 3.1% 'CCC' assets in the portfolio versus a maximum allowance of 5%, based on Moody's ratings. However, Fitch currently considers 5% of the collateral assets to be rated in the 'CCC' category versus 9.1% in the indicative portfolio at closing, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 91.4% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.
The ratings of the notes 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 Madison Park XI, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
Madison Park XI is an arbitrage, cash flow collateralized loan obligation (CLO) managed by Credit Suisse Asset Management, LLC. The transaction remains in its reinvestment period, which is scheduled to end in October 2017. During the reinvestment period, discretionary sales are permitted up to 25% of the portfolio balance per year. The manager also has the ability to reinvest unscheduled principal proceeds and sales proceeds from the disposal of credit risk obligations after the reinvestment period, subject to certain conditions.
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. Given the stable performance of the deal since closing in September 2013, no updated cash flow modeling was completed. The WAS, WAL, and PCM outputs are similar to the levels at closing. The current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 49.4% and 39.1%, respectively, versus an RDR of 52.8% and RRR of 38.6% for the indicative portfolio at closing.
The rating of the Madison Park XI class A-2 notes is not expected to experience rating volatility in the near term, supporting its Stable Outlook.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Nov. 15, 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.
Fitch has affirmed the following rating:
--$103,000,000 class A-2 notes at 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-1A, A-1B, B-1, B-2, C, D, E, F, or subordinated notes.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).
--'Madison Park Funding XI, Ltd./LLC New Issue Report' (Nov. 15, 2013);
--'Madison Park Funding XI, Ltd./LLC - Appendix' (Nov. 15, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Counterparty Criteria for Structured Finance and Covered Bonds
Madison Park Funding XI, Ltd./LLC
Madison Park Funding XI, Ltd./LLC -- Appendix