News Column

Fitch Affirms LCM XIII Limited Partnership

February 12, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the class A notes issued by LCM XIII Limited Partnership (LCM XIII) at 'AAAsf'. The Rating Outlook on the class remains Stable.

KEY RATING DRIVERS:

The affirmation is based on the stable performance of the underlying portfolio since the transaction's inception in February 2013 and the stable credit enhancement available to the notes. As of the Jan. 10, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there have been no defaults in the underlying portfolio to date.

The loan portfolio par amount plus the principal collections cash amount is approximately $500.5 million, compared to the effective date target balance of $500 million, resulting in a slight increase in credit enhancement level for the class A notes. The minimum required weighted average spread (WAS) trigger is 4.0%, versus a current WAS of 4.02%, as reported by the trustee. Additionally, the weighted average rating factor has improved to the 'B+/B' range from 'B' at inception. The trustee currently reports 0.8% 'CCC' assets in the portfolio versus a maximum allowance of 7.5%, based on S&P ratings. However, Fitch currently considers 3.7% of the collateral assets to be rated in the 'CCC' category versus 10.2% in the indicative portfolio at closing, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 88.9% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.

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, overcollateralization (OC) or interest coverage (IC) test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of LCM XIII, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.

LCM XIII is an arbitrage, cash flow collateralized loan obligation (CLO) managed by LCM Asset Management LLC. The transaction remains in its reinvestment period, which is scheduled to end in January 2017. During the reinvestment period, discretionary sales are permitted up to 20% of the portfolio balance per year. Sales of defaulted, credit-risk and credit-improved securities are permitted at any time, including after the reinvestment period. The manager also has the ability to reinvest unscheduled principal proceeds and sales proceeds from the disposal of credit risk obligations after the reinvestment period, subject to certain conditions.

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 February 2013, no updated cash flow modeling was completed. The WAS, WAL, and PCM outputs are similar to the levels at closing. The current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 45.9% and 42.0%, respectively, versus an RDR of 46.3% and RRR of 38.0% for the indicative portfolio at closing.

The rating of the LCM XIII class A notes is not expected to experience rating volatility in the near term, supporting its Stable Outlook.

Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on April 8, 2013. A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is also available by accessing the reports and links indicated below.

Fitch has affirmed the following rating:

--$322,500,000 class A notes 'AAAsf'; Outlook Stable.

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, Morgan Stanley & Co. LLC, and the public domain.

Applicable Criteria & 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);

--'LCM XIII Limited Partnership New Issue Report' (April 8, 2013);

--'LCM XIII Limited Partnership -- Appendix' (April 8, 2013).

Applicable Criteria and Related Research:

LCM XIII Limited Partnership

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704754

LCM XIII Limited Partnership -- Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704757

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715492

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=820395

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.



Fitch Ratings

Primary Surveillance Analyst

Felix Chen, +1 212-908-9154

Analyst

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004

or

Committee Chairperson

Derek Miller, +1 312-368-2076

Senior Director

or

Media Relations:

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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