Fitch Upgrades Notes Issued by Tenzing CFO S.A.

CHICAGO--()--Fitch Ratings has upgraded three classes of floating- and fixed-rate notes issued by Tenzing CFO, S.A. (Tenzing), a securitization of existing limited partnership interests and future commitments to private equity funds, which is managed by Vedanta Capital as follows:

--$33,000,000 class C to 'BBBsf' from 'Bsf'; Outlook Stable;

--$8,500,000 class D1 to 'Bsf' from 'CCCsf'; Outlook Stable;

--EUR10,000,000 class D2 to 'Bsf' from 'CCCsf'; Outlook Stable.

The following classes have been marked 'Paid-in-Full' (PIF):

--$16,000,000 class B1;

--EUR21,000,000 class B2.

KEY RATING DRIVERS:

--Improved asset coverage ratios due to capital structure deleveraging;

--Adequate near term liquidity relative to unfunded commitments and debt service;

--Stabilization of the fund's underlying fund values from 2009 lows combined with consistent positive net cash flows over the last 12 months.

ASSET COVERAGE RATIOS

Between June 24, 2013 and June 22, 2014, asset coverage tests for all remaining liability tranches have passed with increasing cushion during the period. Class C coverage increased to 5.46x from 2.98x, and class D coverage increased to 3.79x from 2.39x. Asset coverage tests insure timely payment of interest on the rated notes.

The improvement in asset coverage is attributed primarily to full amortization of the class A and B notes beginning with the December 2011 pay period. The improvement is counterbalanced by the fundamental risks of private equity as an asset class, which include valuation volatility and uncertain cash flow timing and deal activity. Due to the class A and B redemption, class C note holders now assume senior status in the capital structure and are entitled to all proceeds used for principal amortization in full prior to payments to subordinate classes.

LIQUIDITY PROFILE

According to the June 2014 trustee report, Tenzing's unfunded commitment exposure was reduced by $4.1 million over the review period to an outstanding balance of $17.5 million. That amount was covered by cash / liquid investments of $26.2 million and a $11.6 million liquidity facility. The liquidity facility was renewed through Dec. 14, 2014, and is renewed on a yearly basis, subject to certain terms, such as adequate asset coverage. Amounts may be borrowed under the facility to fund the payment of senior expenses or fund capital calls up to 70% of 50% of the outstanding balance on the rated notes so long as the asset coverage tests are in compliance. Tenzing had not drawn on the liquidity facility as of June 22, 2014.

RATING APPROACH

The ratings on the notes address the likelihood that investors will receive ultimate payment of interest C and D notes, and ultimate repayment of principal on all classes of notes. A third-party liquidity facility has been structured to ensure timely payment of interest and expenses on all classes of notes, with the exception of class E, which is not rated by Fitch.

In line with the analytical approach outlined in the criteria report titled 'Rating Market Value Structures' dated Sept. 4, 2014, Fitch undertook additional analysis specific to the Tenzing transaction and its underlying collateral. Specifically, Fitch's loss assumptions were based on historically observed peak-to-trough losses from venture capital and buyout valuation indices. The index data included the 2000-2002 time period (tech bubble), when venture capital had significantly higher valuation increases and suffered material subsequent losses. For buyout funds, these index data included the 2005-2007 time period, when leverage and valuations for buyout transactions increased significantly leading up to the financial crisis, and were subsequently followed by material mark-to-market losses during the 2007-2009 time period.

Based on observed historical price declines, as well as the transaction's portfolio composition and vintage diversification, a base-line loss assumption of approximately 38% was applied to all classes of notes and subtracted from their current levels of credit enhancement. The remaining credit enhancement was then compared to different rating stresses to determine the appropriateness of existing ratings. The loss assumptions were increased (decreased) from these levels when evaluating higher (lower) rated securities. Going forward, Fitch will continue to track actual gains or losses from portfolio investments and adjust its base case loss assumptions accordingly.

TRANSACTION PROFILE

Tenzing is a securitization of existing limited partnership interests and new commitments to private equity funds. The transaction entered its amortization period in December 2010 and does not currently have the ability to enter into new commitments.

As of June 22, 2014, approximately 60% of the portfolio was invested in buy-out funds while the remaining 40% was invested in venture capital funds. The transaction was invested in 38 funds, with vintages ranging from 1992-2008, and over 65% invested in funds of a 2005 or later vintage. As of the same date, the portfolio was meeting all of its diversification guidelines in terms of exposure to individual vintages and fund types.

INVESTMENT ADVISER

Tenzing is managed by Vedanta Capital (Vedanta). Headquartered in New York, NY, Vedanta was established in 2006 as a private equity specialist firm focused on technology-based investments. As of June 30, 2014, Vedanta managed approximately $600 million in total commitments and employed 12 professionals.

RATING SENSITIVITIES AND SURVEILLANCE

The assigned ratings may be sensitive to material changes in the values of the underlying private equity fund investments and the impact these have on Tenzing's overall NAV and liquidity relative to the rated liabilities. Furthermore, ratings may be influenced by the rate at which unfunded commitments are drawn, the rate at which gains (or losses) on existing private equity investments are realized, overall economic conditions, and Fitch's assessment of how these factors may influence performance for a given point in time as well as on a going-forward basis. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch. For additional information about Fitch ratings guidelines for market value structures, please review the criteria referenced below, which can be found on Fitch's website.

Fitch seeks quarterly fund information and quarterly investor reports for the fund from The Bank of New York Mellon (trustee) and Vedanta, respectively, to conduct surveillance against ratings guidelines and maintain its ratings.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Market Value Structures' (Sept. 4, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).

Applicable Criteria and Related Research:

Rating Market Value Structures

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=758148

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=870115

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Russ Thomas
Director
+1-312-368-3189
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Yuriy Layvand, CFA
Director
+1-212-908-9191
or
Committee Chairperson
Ian Rasmussen
Senior Director
+1-212-908-0232
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Russ Thomas
Director
+1-312-368-3189
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Yuriy Layvand, CFA
Director
+1-212-908-9191
or
Committee Chairperson
Ian Rasmussen
Senior Director
+1-212-908-0232
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com