NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed five classes of notes issued by Kingsland VII, an arbitrage cash flow collateralized loan obligation (CLO) managed by Kingsland Capital Management LLC. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The rating affirmations are based on the stable credit enhancement levels on the transaction, stable performance of the portfolio and the cushions available in Fitch's cash flow modeling results. As of the March 12, 2015 report, the transaction continues to pass all of its coverage and primary collateral quality tests. Fitch's cash flow analysis also indicates each class of notes is passing all 12 interest rate and default timing scenarios at or above their current rating levels.
The loan portfolio par amount plus principal cash is approximately $475.7 million, compared to the effective date target par balance of $472 million, resulting in a slight increase in credit enhancement levels since closing. The minimum required weighted average spread (WAS) trigger is 4.15%, versus a current WAS of 4.84%, as reported by the trustee. The trustee reports the weighted average rating factor in the 'B/B+' range. Fitch considers approximately 2.8% of the loan portfolio to be rated in the 'CCC' category, according to Fitch's Issuer Default Rating (IDR) Equivalency Map. The portfolio (excluding principal cash) is invested in 95.4% senior secured loans, and 4.6% second lien loans and approximately 91.4% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.
The Kingsland VII notes are not expected to experience rating volatility in the near term, supporting their Stable Outlooks.
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 Kingsland VII, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
The transaction remains in its reinvestment period, which is scheduled to end in July 2018.
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 combinations of default timing and interest rate stress scenarios, as described in the report. The cash flow model was customized to reflect the transaction's structural features.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on July 10, 2014. A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is available by accessing the reports and links indicated below.
Fitch has affirmed the following ratings:
--$297,000,000 class A notes 'AAAsf'; Outlook Stable;
--$48,500,000 class B notes 'AAsf'; Outlook Stable;
--$21,500,000 class C notes 'Asf'; Outlook Stable;
--$17,750,000 class D notes 'BBBsf'; Outlook Stable;
--$21,500,000 class E notes 'BBsf'; Outlook Stable.
Fitch does not rate the subordinated notes.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, and the public domain.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (March 31, 2015);
--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Dec. 19, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'Kingsland VII New Issue Report' (July 10, 2014);
--'Kingsland VII -- Appendix' (June 4, 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
Kingsland VII -- Appendix