Fitch Affirms 4 & Upgrades 3 Classes of Emporia Preferred Funding II,
NEW YORK -- January 10, 2013
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
--$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
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
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
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:
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
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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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