NEW YORK--()--Fitch Ratings has affirmed four and upgraded three classes of notes issued by Emporia Preferred Funding II, Ltd./Corp. (Emporia II) as follows:
--$78,828,384 class A-1 notes at 'AAAsf'; Outlook Stable;
--$25,987,379 class A-2 notes at 'AAAsf'; Outlook Stable;
--$103,949,517 class A-3 notes at 'AAAsf'; Outlook Stable;
--$30,000,000 class B notes at 'AAsf'; Outlook Stable;
--$22,000,000 class C notes upgraded to 'Asf' from 'BBBsf'; Outlook to Stable from Positive;
--$22,000,000 class D notes upgraded to 'BBsf' from 'Bsf'; Outlook Positive;
--$14,500,000 class E notes upgraded to 'Bsf' from 'CCCsf'; assigns Outlook Positive.
The rating actions reflect the overall stability in credit quality and increasing credit enhancement levels following amortization of the underlying loan portfolio. Since January 2012, $24.2 million in principal proceeds was received to pay down principal on the class A-1, A-2 and A-3 notes (collectively, class A). The amount of performing assets Fitch considers rated 'CCC+' or below has decreased to 6.7% from 7.9% in January 2012. Fitch currently considers the weighted average rating of the $281.4 million (as of Dec. 2, 2012 trustee report) performing portfolio to be 'B/B-', within the same rating category as the portfolio in January 2012.
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 default timing and interest rate stress scenarios, as described in the report 'Global Criteria for Cash Flow Analysis in CDOs'. While Fitch's cash flow analysis indicates higher passing rating levels for the class B, C, D and E notes, the current ratings appropriately reflect the risk profile of the remaining portfolio. These classes of notes remain subordinate to the class A notes and will not receive any principal proceeds until the more senior tranches are paid in full. Based on the maturity profile of the remaining portfolio, class A is not expected to pay in full within the next year. Since the class C, D and E notes receive interest and principal subordinate to satisfaction of the class A/B coverage tests, Fitch applied a ratings cap to these classes. The application of a cap under Fitch's 'Criteria for Rating Caps in Global Structured Finance Transactions' reflects the additional risk to the class C, D and E notes given their ability to defer interest payments.
Emporia II is a cash flow collateralized loan obligation (CLO) that closed on June 21, 2006 and is managed by Ivy Hill Asset Management, a portfolio management company of Ares Capital Corporation. Emporia II has a portfolio primarily composed of U.S. middle market loans, approximately 94.7% of which are senior secured positions and approximately 5.3% of which are second lien loans and structured finance assets. The transaction exited its reinvestment period in July 2012.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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' (June 6, 2012);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Rating Caps in Global Structured Finance Transactions' (Aug. 2, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 20, 2012).
Applicable Criteria and Related Research:
Criteria for Rating Caps in Global Structured Finance Transactions
Global Criteria for Cash Flow Analysis in CDOs
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria
Criteria for Interest Rate Stresses in Structured Finance Transactions