Fitch Affirms 7 Classes of Emporia Preferred Funding I, Ltd./Corp.
CHICAGO -- December 18, 2012
Fitch Ratings has affirmed seven classes of notes issued by Emporia Preferred
Funding I, Ltd./Corp. (Emporia I) and revised rating outlooks as follows:
--$130,572,352 class A notes at 'AAAsf'; Outlook Stable;
--$36,615,000 class B-1 notes at 'AAsf'; Outlook to Positive from Stable;
--$5,000,000 class B-2 notes at 'AAsf'; Outlook to Positive from Stable;
--$24,360,000 class C notes at 'Asf'; Outlook to Positive from Stable;
--$24,360,000 class D notes at 'BBBsf'; Outlook Stable;
--$8,000,000 class E-1 notes at 'BBsf'; Outlook Stable;
--$5,195,000 class E-2 notes at 'BBsf'; Outlook Stable.
The rating actions reflect the overall stability in credit quality of the
underlying loan portfolio and increasing credit enhancement levels following
amortization of the underlying portfolio. Since December 2011, the transaction
has received a significant amount of principal proceeds, with the class A
notes paying down $144.1 million in principal. The amount of performing assets
Fitch considers rated 'CCC+' or below has decreased to 7.2% from 11.9% in
December 2011. Fitch currently considers the weighted average rating of the
$225 million (as of Nov. 2, 2012 trustee report) performing portfolio to be
'B/B-', within the same category as the portfolio in December 2011.
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-1, B-2 and C notes, the current ratings appropriately reflect the
risk profile of the remaining portfolio. The class B-1, B-2 and C 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 notes receive interest and principal subordinate
to satisfaction of the class A/B coverage tests, Fitch applied a ratings cap
at 'Asf' to this class. 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 notes given their ability to defer interest payments.
Emporia I is a cash flow collateralized loan obligation (CLO) that closed on
Oct. 12, 2005 and is managed by Ivy Hill Asset Management, a portfolio
management company of Ares Capital Corporation. Emporia I has a revolving
portfolio primarily composed of U.S. middle market loans, approximately 91.6%
of which are senior secured positions and approximately 8.4% of which are
second lien loans and structured finance assets. The transaction exited its
reinvestment period in October 2011.
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
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.
--'Criteria for Interest Rate Stresses in Structured Finance Transactions'
(March 20, 2012).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Global Criteria for Cash Flow Analysis in CDOs
Criteria for Rating Caps in Global Structured Finance Transactions
Criteria for Interest Rate Stresses in Structured Finance Transactions
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Primary Surveillance Analyst
Aaron Hughes, +1-312-368-2074
70 West Madison Street
Chicago, IL 60602
Derek Miller, +1-312-368-2076
Sandro Scenga, New York, +1 212-908-0278
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