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Fitch Affirms LCM XIII Limited Partnership

February 17, 2014

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.


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, 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 percent, versus a current WAS of 4.02 percent, 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 percent 'CCC' assets in the portfolio versus a maximum allowance of 7.5 percent, based on S&P ratings. However, Fitch currently considers 3.7 percent of the collateral assets to be rated in the 'CCC' category versus 10.2 percent in the indicative portfolio at closing, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 88.9 percent of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.


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 percent 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 percent and 42.0 percent, respectively, versus an RDR of 46.3 percent and RRR of 38.0 percent 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 ''.

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 report_frame.cfm?rpt_id=704754

LCM XIII Limited Partnership -- Appendix report_frame.cfm?rpt_id=704757

Counterparty Criteria for Structured Finance and Covered Bonds report_frame.cfm?rpt_id=707155

Global Rating Criteria for Corporate CDOs report_frame.cfm?rpt_id=715492

Global Structured Finance Rating Criteria report_frame.cfm?rpt_id=708661

Additional Disclosure

Solicitation Status solicitation?pr_id=820395

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