Fitch Ratings has affirmed the class A notes issued by KVK CLO 2013-1 Ltd. (KVK CLO 2013-1) at 'AAAsf'. The Rating Outlook remains Stable.
KEY RATING DRIVERS
The affirmation is based on the stable performance of the underlying portfolio since Fitch's last review in February 2014 and the stable credit enhancement available to the notes. As of the Jan. 2, 2015 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there have been no defaults in the underlying portfolio to date.
The loan portfolio par amount plus principal cash is approximately $552.9 million, compared to the effective date target par balance of $550 million, resulting in an increase in credit enhancement level for the class A notes. The weighted average rating factor is at 'B' compared to 'B/B-' at the last review, and Fitch currently considers 4.6% of the portfolio (excluding cash) to be rated in the 'CCC' category or lower, based upon Fitch's Issuer Default Rating (IDR) Equivalency Map.
The weighted average spread (WAS) has declined to 4.4% from 4.6% at the last review; however, the test is still passing the current trigger level of 4%. Additionally, the weighted average life (WAL) has decreased to 5 years, versus 5.5 years at the last review and remains below the trigger level of 6.3 years. The portfolio (excluding cash) is invested in 95.8% senior secured loans and 4.2% second lien loans. Currently, 90.1% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.
The rating of the class A notes is not expected to experience rating volatility in the near term, supporting its Stable Outlook.
RATING SENSITIVITIES
The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', portions of the portfolio being placed on Rating Watch Negative, overcollateralization (OC) or interest coverage (IC) test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of KVK CLO 2013-1, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
KVK CLO 2013-1 is an arbitrage, cash flow collateralized loan obligation (CLO) managed by Kramer Van Kirk Credit Strategies LP. The transaction remains in its reinvestment period, which is scheduled to end in April 2017. During the reinvestment period discretionary sales are permitted up to 20% of the portfolio balance during any rolling 12-month period. Sales of defaulted, credit-risk and credit-improved securities are permitted at any time, including after the reinvestment period, with the sale of credit-improved assets subject to certain restrictions. The manager also has the ability to reinvest unscheduled principal proceeds and sales proceeds from the disposal of credit risk assets after the reinvestment period, subject to certain conditions.
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. Given the stable performance of the deal since closing in February 2013, no updated cash flow modeling was completed.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on March 19, 2013. A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is also available by accessing the reports and links indicated below.
Fitch has affirmed the following rating:
--$346,500,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E, and subordinated notes.
Additional information is available at 'www.fitchratings.com'.
The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'KVK CLO 2013-1 Ltd.' (March 19, 2013);
--'KVK CLO 2013-1 Ltd. - Appendix' (March 19, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389
Global Rating Criteria for Corporate CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
KVK CLO 2013-1 Ltd.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=702851
KVK CLO 2013-1 Ltd. -- Appendix
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=703475
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978851
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