CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the class X, A-1 and A-2 notes issued by Brookside Mill CLO Ltd./LLC (Brookside Mill) at 'AAAsf'. Following the affirmation, Fitch has withdrawn the rating on the class A-2 notes. The Rating Outlook on the class X and A-1 notes remains Stable.
KEY RATING DRIVERS
The affirmations are based on the stable performance of the underlying portfolio since the transaction's inception in May 2013 and the stable credit enhancement available to the notes. As of the Feb. 5, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests.
The withdrawal of the rating on the class A-2 notes follows that the full $40 million principal balance of the notes were converted into class A-1 notes in January 2014. The class A-2 notes were structured as a delayed draw note, which would convert into class A-1 notes once the class A-2 draw period terminated. As a result, the class A-1 note balance increased by the same amount and the balance of the class A-2 notes was reduced to zero.
The loan portfolio par amount plus principal cash is approximately $453.9 million, compared to the effective date target par amount of $450 million, causing the class A-1 notes credit enhancement level to increase to 39% from 38.4% at closing. The average credit quality of the portfolio has dropped slightly to 'B/B-' from 'B' at closing. The trustee reported portfolio is invested in 93.6% first lien senior secured loans, 3.7% second lien loans, 2% senior unsecured bonds, 0.4% senior unsecured loans and 0.3% senior secured bonds. The weighted average spread (WAS) is 4.89% compared with the current trigger level of 4.4%. Additionally, the maximum weighted average life (WAL) trigger is eight years, versus a current WAL of 5.73 years. The trustee reports 0.5% 'CCC' assets versus a maximum allowance of 7.5%, based upon S&P ratings, and 3.82% versus a maximum allowance of 7.5%, based upon Moody's ratings.
RATING SENSITIVITIES
The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', portions of the portfolio being placed on Rating Watch Negative, OC or IC test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of Brookside Mill, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on June 13, 2013.
Brookside Mill is an arbitrage, cash flow collateralized loan obligation (CLO) that closed on May 23, 2013 and is managed by Shenkman Capital Management, Inc. The transaction remains in its reinvestment period, which is scheduled to end in April 2017.
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. Given the stable performance of the deal since closing in May 2013, there was no updated cash flow modeling completed. The WAS, WAL, and PCM outputs are all in line with the levels at closing. The current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 53.2% and 37%, respectively, versus an RDR of 52% and RRR of 37.1% for the indicative portfolio at closing. The class X and A-1 were able to withstand defaults of 82% and 67%, respectively, at closing.
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:
Brookside Mill CLO Ltd./LLC:
--Class X notes at 'AAAsf'; Outlook Stable;
--Class A-1 notes at 'AAAsf'; Outlook Stable.
Fitch has affirmed and withdrawn the following ratings:
Brookside Mill CLO Ltd./LLC:
--Class A-2 notes at 'AAAsf'; Outlook Stable.
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 and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Brookside Mill CLO Ltd. New Issue Report' (June 13, 2013);
--'Brookside Mill CLO Ltd. - Appendix' (June 13, 2013).
Applicable Criteria and Related Research:
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
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155
Brookside Mill CLO Ltd.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709736
Brookside Mill CLO Ltd. -- Appendix
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710908
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824640
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