NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed seven classes and revised the Rating Outlook on two classes of notes issued by Emporia Preferred Funding III, Ltd./LLC (Emporia III) as follows:
--$14,385,849 class A-1 notes at 'AAAsf'; Outlook Stable;
--$5,754,339 class A-2 notes at 'AAAsf'; Outlook Stable;
--$19,072,758 class A-3 notes at 'AAAsf'; Outlook Stable;
--$26,845,000 class B notes at 'AAsf'; Outlook Stable;
--$37,170,000 class C notes at 'Asf'; Outlook Stable;
--$20,650,000 class D notes at 'BBsf'; Outlook to Stable from Positive;
--$18,585,000 class E notes at 'Bsf'; Outlook to Stable from Positive.
Fitch does not rate the preference shares.
KEY RATING DRIVERS
The affirmations reflect the stable performance of the underlying portfolio since the transaction's last review in January 2014. Since the last review, the transaction has paid down approximately $193.9 million of the class A-1, A-2, and A-3 notes (collectively, the class A notes) with principal proceeds from the amortizing loan portfolio. As a result, credit enhancement levels for the notes have increased for the notes.
Fitch currently considers 4.7% of the portfolio to be rated 'CCC+' or below in the performing portfolio versus 4.5% at the last review, and the weighted average rating factor of the performing portfolio remains stable at 'B/B-'. According to the November 2104 trustee report, there are three defaulted obligors in the portfolio totaling approximately $3.8 million in par and the weighted average spread (WAS) declined to 3.9% from 4.2% in the last review. Additionally, Fitch's analysis focused on a performing portfolio balance of $153.2 million held across 43 obligors and $3.7 million in principal collections.
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 assigned a Negative Outlook, OC or IC test breaches.
Emporia III is a cash flow collateralized loan obligation (CLO) that closed on March 15, 2007 and is managed by Ivy Hill Asset Management, a portfolio management company of Ares Capital Corporation. Emporia III has a revolving portfolio primarily composed of U.S. middle market loans, approximately 93.6% of which are senior secured positions and approximately 6.4% of which are subordinated loans and structured finance assets. The transaction exited its reinvestment period in April 2013.
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 used in Fitch's cash flow model under various default timing and interest rate stress scenarios. The cash flow model was customized to reflect the CLO's structural features.
While Fitch's cash flow analysis indicates higher passing rating levels for the class B, C, D and E notes in all 12 interest rate and default timing scenarios, the current ratings appropriately reflect the risk profile of the remaining portfolio. The class D and E notes remain subordinate to more senior classes and are the most susceptible to portfolio concentration risks and the increased tightening of the WAS.
The ratings of the class A, B, C, D, and E notes are not expected to experience rating volatility in the near term, supporting their Stable Outlook.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, note valuation reports, and the public domain.
Applicable Criteria & 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).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds