Fitch Upgrades 2 Classes and Affirms 2 Classes of Emporia Preferred Funding
NEW YORK -- December 13, 2013
Fitch Ratings has upgraded two classes and affirmed two classes of notes
issued by Emporia Preferred Funding I, Ltd./Corp. (Emporia I). The rating
actions are as follows:
--$21,039,146 class C notes upgraded to 'AAAsf' from 'Asf'; Outlook to Stable
--$24,360,000 class D notes upgraded to 'Asf' from 'BBBsf'; Outlook to
Positive from Stable;
--$8,000,000 class E-1 notes affirmed at 'BBsf'; Outlook to Positive from
--$5,195,000 class E-2 notes at affirmed 'BBsf'; Outlook to Positive from
KEY RATING DRIVERS
The rating actions are based on the significant increase in credit enhancement
available to the notes and the improved performance of the underlying
portfolio since the transaction's last rating action in December 2012. Since
the last rating action, the transaction has received a significant amount of
principal proceeds from the amortization of the portfolio, redeeming the class
A and B (class B-1 and B-2) notes in full and paying down an additional $3.3
million in class C principal. As of the Nov. 2, 2013 trustee report, the
transaction continues to have ample cushion in all its overcollateralization
(OC) and interest coverage (IC) tests.
Fitch currently considers no assets to be rated 'CCC+' or below in the
performing portfolio versus 7.2% at the last review and the weighted average
rating factor of the performing portfolio improved to 'B' from 'B/B-'.
According to the trustee report, there are two defaulted obligors in the
portfolio totaling approximately $1 million and the current weighted average
spread (WAS) is 3.74%, compared to a trigger of 3.5%. Additionally, Fitch's
analysis focused on a performing portfolio balance of $73.3 million held
across 30 borrowers and $6.9 million in principal collections.
The ratings of the notes may be sensitive to the following: asset defaults,
portfolio migration, including assets being downgraded to 'CCC', or portions
of the portfolio being placed on Rating Watch Negative or assigned a Negative
Outlook, OC or IC test breaches.
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 portfolio
primarily composed of U.S. middle market loans, approximately 83.54% of which
are senior secured positions and approximately 16.46% of which are second lien
loans and structured finance assets. The transaction exited its reinvestment
period in October 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.
While Fitch's cash flow analysis indicates higher passing rating levels for
the class D and class E-1 and E-2 notes (collectively, the class E notes) in
all 12 interest rate and default timing scenarios, the current recommended
ratings appropriately reflect the risk profile of the remaining portfolio. The
class D and E notes remain subordinate to the class C notes and the class D
and E notes are the most susceptible to portfolios concentration risks. The
Positive Outlook on the class D and E notes reflects Fitch's expectations of
improved performance of the notes in the near term.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from the asset
manager, periodic servicer reports, and the public domain.
Applicable Criteria and 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,
--'Criteria for Interest Rate Stresses in Structured Finance Transactions'
(Jan. 25, 2013);
--'Criteria for Rating Caps and Limitations in Global Structured Finance
Transactions' (June 12, 2013);
--'Global Rating Criteria for Structured Finance CDOs' (Sept. 12, 2013).
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Primary Surveillance Analyst:
Christine Choo, +1-212-908-0603
One State Street Plaza
New York, NY 10004
Derek Miller, +1-312-368-2076
Sandro Scenga, New York, +1 212-908-0278
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