NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following rating to the class A notes of AMMC CLO XIII, Limited (AMMC XIII):
--$240,000,000 class A delayed draw notes 'Asf'; Outlook Stable.
KEY RATING DRIVERS
Credit Enhancement: Fitch's credit analysis of the notes focused on portfolio stresses at the first class A advance and an indicative portfolio provided by The Royal Bank of Scotland Plc (RBS), as arranger. Following the class A initial advance, credit enhancement for the notes may range between 15% and 85.7%, dependent upon the portfolio's size, credit quality, asset security, average spread, and diversity. The corresponding credit enhancement levels for the portfolios that Fitch stressed are sufficient to protect against portfolio default and recovery rate projections in the 'Asf' stress scenarios.
Portfolio Parameters: The portfolio will be actively managed and bound by collateral quality and concentration limitations addressing various asset characteristics. The concentration limitations presented for this facility are generally within the range of limits set in the majority of recent CLOs. Fitch addressed the impact of the most prominent risk-presenting concentration allowances in its analysis while also considering the minimum levels of credit enhancement required to support the class A notes at interim stages in the ramp-up period. Additionally, a majority of the class A noteholders maintain the right to refuse advances for the purchase of new collateral.
'B/B-' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a relatively weak credit quality; however, in Fitch's opinion, the class A notes are unlikely to be affected by the foreseeable level of defaults.
Facility Termination Features: The class A delayed draw notes are expected to be repaid from a future securitization event. Principal prepayment features for the class A notes include optional termination provisions at the direction of the equity holders at any time along with optional termination provisions for the class A noteholders at any time after 270 days.
TRANSACTION SUMMARY
AMMC XIII is a term facility to fund purchases of broadly syndicated loans. The facility is structured like a CLO, with similar investment parameters. Fitch expects the class A notes to be repaid via a securitization event within one year of closing.
The facility closed on June 4, 2013 with an initial investment of $30 million from the equity holders and a class A delayed draw note outstanding balance of $0. The class A notes have sole discretion to advance funds in $5 million increments, with total outstanding advances capped at $240 million. The overcollateralization ratio test of 112.6% must be satisfied prior to any advance. Credit enhancement for class A will vary between 85.7% and 15% as additional advances are made. Minimum credit enhancement requirements vary depending on predefined diversity, weighted average spread, weighted average recovery, and weighted average rating factor limitations for the portfolio.
AMMC XIII has a maximum two-year ramp-up period and allows discretionary sales or sales of credit risk obligations at any time so long as the advance rate test is satisfied and the eligibility criteria are met. The facility features portfolio concentration limitations that are generally consistent with recent CLO issuance.
The class A notes have been assigned a Stable Outlook based on Fitch's expectation of steady performance through anticipated levels of default and the various forms of credit enhancement available to the notes.
The transaction will be managed by American Money Management Corporation (AMMC). As part of its analysis, Fitch's Funds and Asset Manager Ratings group (FAM) evaluated AMMC and determined its capabilities satisfactory in the context of the rating assigned to this transaction and the investment parameters that govern AMMC's activities.
RATING SENSITIVITIES
Fitch's standard sensitivities as described in its 'Global Rating Criteria for Corporate CDOs' are not applicable to this type of facility, so additional sensitivities were applied. To supplement the analysis of the indicative class A advance portfolio, Fitch ran sensitivities considering permissible portfolio parameters and assuming a securitization event does not occur. The rating sensitivity analyses were based on a Fitch stressed portfolio assuming credit enhancement levels of 15% for portfolio sizes of $165 million and $300 million. The rating sensitivity analyses were primarily based on Fitch stressed portfolios derived from the indicative portfolio, with assumed characteristics matching conservative rows of the collateral quality matrix. Additionally, Fitch analyzed these portfolios assuming a liquidation scenario in which assets were discounted in accordance with Fitch's criteria 'Rating Closed-End Fund Debt and Preferred Stock'.
Sensitivity 1: Fitch applied a sensitivity analysis in which the class A notes are funded to $140 million three months after closing and a securitization event is no longer expected. In this scenario, the facility has ramped to a $165 million portfolio with permissible collateral quality matrix characteristics including a weighted average rating of 'B+/B' and a weighted average spread of 4.6%. Under this sensitivity scenario, all passing ratings were in the 'BBB' rating category.
Sensitivity 2: Fitch applied a sensitivity analysis in which the class A notes are funded to the maximum $240 million and a securitization event is no longer expected. In this scenario, the facility has ramped to a $300 million portfolio with permissible collateral quality matrix characteristics including a weighted average rating of 'B/B-' and minimum spread (4.35%) and coupon (6.5%) levels for floating rate and fixed rate assets, respectively. Fitch stressed this portfolio in the Portfolio Credit Model (PCM) using new deal mode, followed by a cash flow model analysis applying interest rate and default timing stresses. Under this sensitivity scenario, passing ratings ranged between 'AAAsf' and 'A+sf'.
Sensitivity 3: Fitch applied a sensitivity analysis in which the class A notes are funded to the maximum $240 million and a securitization event is no longer expected. In this scenario, the facility has ramped to a $300 million portfolio with permissible collateral quality matrix characteristics including a weighted average rating of 'B/B-' and minimum spread (4.35%) and coupon (6.5%) levels for floating rate and fixed rate assets, respectively. Fitch stressed this portfolio in the PCM using surveillance mode, followed by a cash flow model analysis applying interest rate and default timing stresses. Under this sensitivity scenario, passing ratings ranged between 'AAAsf' and 'A+sf'.
Sensitivity 4: Using the portfolio from Sensitivity 1 above, Fitch applied 45-day discount factors for senior secured loans from its 'Rating Closed-End Fund Debt and Preferred Stock' criteria to calculate funds available to repay the notes under a liquidation scenario assuming a securitization event is no longer expected. Under this sensitivity liquidation scenario, $128.9 million is available for repayment of $140 million of class A notes.
Sensitivity 5: Using the portfolio from Sensitivity 2 above, Fitch applied 45-day discount factors for senior secured loans from its 'Rating Closed-End Fund Debt and Preferred Stock' criteria to calculate funds available to repay the notes under a liquidation scenario assuming a securitization event is no longer expected. Under this sensitivity liquidation scenario, $234.3 million is available for repayment of $240 million of class A notes.
The class A notes displayed robustness in Fitch's various sensitivity scenarios, in line with performance expectations of an 'Asf' rating.
Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess these ratings were the transaction documents and other materials provided by the arranger, RBS, and the public domain.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Criteria for Rating Caps in Global Structured Finance Transactions' (Aug. 2, 2012);
--'Rating Closed-End Fund Debt and Preferred Stock' (Aug. 15, 2012).
Applicable Criteria and Related Research: AMMC CLO XIII, Ltd. -- Appendix
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709982
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155
Criteria for Rating Caps in Global Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684737
Rating Closed-End Fund Debt and Preferred Stock
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686101
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
Global Rating Criteria for Corporate CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683910
Global Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518
Criteria for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792854
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.