NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on all classes and revised the Rating Outlook on one class of notes from two European collateralized debt obligations (CDOs) with exposure to senior unsecured, subordinate debt, Trust Preferred Securities (TruPS) issued by real estate companies, commercial mortgage backed securities, commercial real estate debt, and securities issued by financial companies. A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The affirmation of the notes in both transactions reflects stable performance since last review. In both transactions, the credit migration of the underlying collateral marginally improved.
The class A1 notes in Taberna Europe I, received 30.1% of the last review balance of $219 million mainly from five collateral redemptions. In Taberna Europe II, the class A1 notes received 22.9% of the $357 million balance at last review primarily from the principal paydowns of four assets.
Deleveraging was partially offset by the increased concentration of the portfolios in both transactions. The ratings of the class A-1 notes in both transactions were capped by the outcome of the sensitivity scenario in which the ratings of obligors which made up greater than 5% of the performing portfolio were lowered by one rating category to account for potential performance volatility in concentrated portfolios.
The non-deferrable notes are indexed to a three-month Euribor that is currently negative and results in no interest being due on the next payment period for the A-1 notes.
The risk of interest shortfall has been further reduced in Taberna Europe I as the notional of the largest out-of-the money swap has stepped down by the more than half since last review and is set to expire in January 2017.
The class A-1 and A-2 notes in Taberna Europe II continue to rely on full or partial structuring fee waivers and deferrals of management fees in order to receive timely interest payments. Additionally the out-of-the-money swaps continue to divert a large portion of interest collections. The structuring fee is set to expire in May 2017 and the largest out-of-the-money swap will expire in November 2017.
Fitch analyzed the transaction in accordance with the 'Global Surveillance Criteria for Structured Finance CDOs' and the 'Global Rating Criteria for CLOs and Corporate CDOs'. Default hurdles were projected using the Structured Finance Portfolio Credit Model (PCM) and Corporate PCM.
Significant paydowns combined with stable or improving credit migration, can lead to limited upgrades for the senior notes. Conversely, negative migration, defaults beyond those projected can lead to downgrades in both transactions. In Taberna Europe II not waiving part of the structuring or collateral manager fee may result in an interest shortfall and lead to a downgrade for the non-deferrable notes.
VARIATIONS FROM CRITERIA
One performing perpetual security was treated as a long-dated asset in both transactions whereby it was defaulted at the transactions legal maturity consistent with Fitch's treatment of long-dated assets under the relevant criteria. Fitch considered this a criteria variation given that perpetual securities are not explicitly mentioned in Fitch's treatment of long-dated assets. Fitch does not believe such variation has a measurable impact upon the ratings assigned.
DUE DILIGENCE USAGE
No third party due diligence was reviewed in relation to this rating action.
Fitch has affirmed the following ratings and revised Outlooks as indicated:
Taberna Europe CDO I P.L.C. (Taberna Europe I)
--EUR152,778,881 class A1 notes at 'BBsf'; Outlook to Positive from Stable;
--EUR90,500,000 class A2 notes at 'CCsf';
--EUR50,706,156 class B notes at 'Csf';
--EUR32,222,480 class C notes at 'Csf';
--EUR35,777,774 class D notes at 'Csf';
--EUR26,274,443 class E notes at 'Csf'.
The Positive Outlook on the class A1 notes reflects the expectation for higher excess spread available after the largest out-of-the-money swap expires and upcoming asset maturities in 2017.
Taberna Europe CDO II P.L.C. (Taberna Europe II)
--EUR275,017,137 class A1 notes at 'CCCsf';
--EUR95,000,000 class A2 notes at 'CCsf'.
Fitch does not rate the subordinated notes in Taberna Europe I and the class B, C1, C2, D, E, subordinated notes in Taberna Europe II.
Additional information is available at www.fitchratings.com.
Sources of Information:
The information used to assess these ratings was sourced from trustee reports and the public domain.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016)
Criteria for Country Risk in Global Structured Finance and Covered Bonds (pub. 26 Sep 2016)
Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Sep 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Global Surveillance Criteria for Structured Finance CDOs (pub. 05 Jul 2016)
Dodd-Frank Rating Information Disclosure Form
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