Fitch Rates Madison Park Funding XXXII, Ltd Refinancing Notes
Fitch Rates Madison Park Funding XXXII, Ltd Refinancing Notes
(The following statement was released by the rating agency)Fitch Ratings-Chicago-17 March 2021:
Fitch Ratings has assigned ratings and Rating Outlooks to Madison Park Funding XXXII, Ltd. refinancing notes.
Madison Park Funding XXXII, Ltd.
----A-1 55817AAC8; Long Term Rating; Paid In Full; PIFsf
----A-1-R ; Long Term Rating; New Rating; AAAsf; Rating Outlook Stable
----A-2 55817AAE4; Long Term Rating; Paid In Full; PIFsf
----A-2-R ; Long Term Rating; New Rating; AAAsf; Rating Outlook Stable
----B-R ; Long Term Rating; New Rating; NRsf
----C-R ; Long Term Rating; New Rating; NRsf
----D-R ; Long Term Rating; New Rating; NRsf
----E-R ; Long Term Rating; New Rating; NRsf
Madison Park Funding XXXII, Ltd. (the issuer) is an arbitrage cash flow collateralized loan obligation (CLO) managed by Credit Suisse Asset Management, LLC that originally closed in January 2019. The CLO issued class A-1-R, A-2-R, B-R, C-R, D-R and E-R notes (the refinancing notes) and applied the net issuance to redeem the existing class A-1, A-2, B, C, D and E notes at par (plus accrued interest) on the refinancing date of March 17, 2021.
The refinancing notes generally have the same terms as the previously outstanding classes except the stated spreads have changed and the class A-2-R notes will change from fixed to floating. The spreads for the class A-1-R and A-2-R notes are 1.00% and 1.20% compared to the previous spread and coupon of 1.20% and 4.33%, respectively. The spreads for the class B-R, C-R, D-R and E-R notes are 1.40%, 2.00%, 3.20% and 6.20% compared with the previous 2.05%, 2.90%, 4.10% and 7.10%, respectively.
KEY RATING DRIVERS
Asset Credit Quality: The average credit quality of the indicative portfolio is 'B'/'B-', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, the Class A-1-R and A-2-R notes benefit from credit enhancement of 40.12% and 35.63%, respectively, and standard U.S. CLO structural features.
Asset Security: The portfolio consists of 97.32% first-lien senior secured loans and has a weighted average recovery assumption of 73.31%.
Portfolio Composition: The largest three industries comprise 38.2% of the aggregate principal balance while the top five obligors represent 4.4% of the aggregate principal balance. The level of diversity by industry, obligor and geographic concentrations is in line with other recent U.S. CLOs.
Portfolio Management: The transaction has approximately 2.8-years of reinvestment remaining. Reinvestment criteria is similar to other U.S. CLOs. The transaction will exit its reinvestment period in January of 2024.
Cash Flow Analysis: No updated cash flow analysis was conducted for this transaction because (i) the RDR and RLR, plus losses to date, for the current portfolio and near-term stress scenario (as detailed in "Fitch Ratings Expects to Revise Significant Share of CLO Outlooks to Stable" dated Jan. 22, 2021) remain lower compared with the RDR and RLR modelled for the stress portfolio at closing; (ii) the transaction is still in its reinvestment period; (iii) and the current max weighted average life remains less than the risk horizon that was tested at closing. In addition, we view the reduction of the stated spreads (via the refinancing) as a credit positive for the transaction. The modelled Fitch stressed portfolio at close continues to serve as a proxy, and an updated cash flow model analysis was not conducted for this rating action.
No other material changes were made to the capital structure as a result of the refinancing. The ratings on the class A-1-R and A-2-R notes reflect the stable performance of the transaction since Fitch's last review in June 2020. The portfolio plus principal cash totals approximately $801.6 million as of the February 2021 trustee report, which included approximately $12.7 million of principal cash. All collateral quality tests, coverage tests and concentration limitations were passing with the exception of the S&P CCC and Moody's Caa limitations.
The Stable Outlook on the class A-1-R and A-2-R notes reflects Fitch's expectation that these notes have a sufficient level of credit enhancement to withstand portfolio volatility.
KEY PROVISION CHANGES
The refinancing will be implemented via the first supplemental indenture, which amended certain provisions of the transaction. The changes include, but are not limited to:
--Weighted average life test is being increased by one year to 7.85 years;
--A 5% concentration limitation for permitted debt securities which include senior secured bonds, senior secured notes, second priority senior secured notes and non-convertible high yield bonds;
--Moody's WARF methodology is updated.
Fitch conducted rating sensitivity analysis on the closing date of the CLO, incorporating increased levels of defaults and reduced levels of recovery rates among other sensitivities, as defined in its "CLOs and Corporate CDOs Rating Criteria." For more information on Fitch's stressed portfolio, initial model-implied rating sensitivities and initial Key Rating Drivers, please refer to the presale report published on Dec. 13, 2018.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upgrade scenarios would not be applicable to the class A-1-R and A-2-R notes as these notes are already rated at the highest level of 'AAAsf'.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The ratings of the class A-1-R and A-2-R notes may be sensitive to variability in key model assumptions, which may include but are not limited to: asset defaults, significant credit migration and lower than historically observed recoveries for defaulted assets.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
The sources of information used to assess these ratings were provided by the arranger (Barclays Capital Inc.) and the public domain.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. Offering documents for this market sector do not typically include RW&Es that are available to investors and that relate to the asset pool underlying the security. However, the offering document for this transaction included a draft of the indenture as an appendix, which contains RW&Es related to the underlying asset pool. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
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