Fitch Affirms 7 Classes of Emporia Preferred Funding II, Ltd./Corp.
NEW YORK -- January 3, 2014
Fitch Ratings has affirmed seven classes of notes issued by Emporia Preferred
Funding II, Ltd./Corp. (Emporia II) as follows:
--$26,926,411 class A-1 notes at 'AAAsf'; Outlook Stable;
--$8,876,839 class A-2 notes at 'AAAsf'; Outlook Stable;
--$35,507,355 class A-3 notes at 'AAAsf'; Outlook Stable;
--$30,000,000 class B notes at 'AAsf'; Outlook Stable;
--$22,000,000 class C notes at 'Asf'; Outlook Stable;
--$22,000,000 class D notes at 'BBsf'; Outlook Positive;
--$14,500,000 class E notes at 'Bsf'; Outlook Positive.
KEY RATING DRIVERS
The rating actions are based on the stable performance of the underlying
portfolio since the transaction's last rating action in January 2013. Since
the last rating action, the transaction has received a significant amount of
principal proceeds from the amortization of the portfolio paying down $137.5
million in class A principal. As of the Dec. 2, 2013 trustee report, the
transaction continues to have ample cushion in all its overcollateralization
(OC) and interest coverage (IC) tests.
Fitch currently considers 6.9% of the assets to be rated 'CCC+' or below in
the performing portfolio versus 6.7% at the last review and the weighted
average rating factor of the performing portfolio has remained relatively
stable at 'B/B-'. According to the trustee report, there are three defaulted
obligors in the portfolio totaling approximately $2.7 million and the current
weighted average spread (WAS) is 4.32%, compared to a trigger of 4.0%.
Additionally, Fitch's analysis focused on a performing portfolio balance of
$162.2 million held across 53 borrowers and $8.9 million in principal
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 Outlook Negative, OC
or IC test breaches.
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 93.68% of which
are senior secured positions and approximately 6.32% of which are second lien
loans and structured finance assets. The transaction exited its reinvestment
period in July 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.
While Fitch's cash flow analysis indicates higher passing rating levels for
the class D 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 more senior
classes and are the most susceptible to portfolio concentration risks and the
increased tightening of the WAS. The Positive Outlook for 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).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Interest Rate Stresses in Structured Finance Transactions
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Primary Surveillance Analyst
Christine Choo, +1-212-908-0603
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Derek Miller, +1-312-368-2076
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
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