Fitch Affirms 7 Classes of Emporia Preferred Funding III, Ltd./Corp.
NEW YORK -- January 3, 2014
Fitch Ratings has affirmed seven classes of notes issued by Emporia Preferred
Funding III, Ltd./Corp. (Emporia III) as follows:
-- $85,526,768 class A-1 notes at 'AAAsf'; Outlook Stable;
-- $34,210,707 class A-2 notes at 'AAAsf'; Outlook Stable;
-- $113,391,389 class A-3 notes at 'AAAsf'; Outlook Stable;
-- $26,845,000 class B notes at 'AAsf'; Outlook Stable;
-- $37,170,000 class C notes at 'Asf'; Outlook Stable;
-- $20,650,000 class D notes at 'BBsf'; Outlook Positive;
-- $18,585,000 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.
Following the end of the reinvestment period in April 2013, the transaction
began receiving principal proceeds from the amortization of the portfolio,
paying down approximately $39.5 million of the class A-1, A-2 and A-3 notes
(collectively, the class A notes). 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 4.5% of the portfolio to be rated 'CCC+' or below in
the performing portfolio versus 6.2% at the last review, and the weighted
average rating factor of the performing portfolio has remained 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 4.2%, compared to a trigger of 3.9%. The weighted average life
(WAL) of the portfolio remained relatively unchanged at 4.2 years from 4.3
years in the last review, resulting in a longer risk horizon for the
transaction this year than in last year's review. Additionally, Fitch's
analysis focused on a performing portfolio balance of $331.9 million held
across 96 borrowers and $21.5 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 III is a cash flow collateralized loan obligation (CLO) that closed on
March 15, 2007 and is managed by Ivy Hill Asset Management, a portfolio
management company of Ares Capital Corporation. Emporia III has a revolving
portfolio primarily composed of U.S. middle market loans, approximately 94.8%
of which are senior secured positions and approximately 5.2% of which are
second lien loans and structured finance assets. The transaction exited its
reinvestment period in April 2013.
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 used 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 11 of the 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,
especially when the WAL of the portfolio remains relatively unchanged over
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:
Criteria for Interest Rate Stresses in Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria
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Primary Surveillance Analyst
Felix Chen, +1-212-908-9154
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Derek Miller, +1-312-368-2076
Elizabeth Fogerty, +1-212-908-0526 (New York)
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