Fitch Ratings has affirmed the class A-1 notes issued by Regatta II Funding L.P. (Regatta II) 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 sufficient credit enhancement available to the notes. As of the Dec. 5, 2014 trustee report, the transaction continues to pass all 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 $411.8 million, compared to the effective date target balance of $400 million. The current weighted average spread (WAS) is reported to be 4.56%, versus a minimum WAS trigger of 2.70%. Additionally, the weighted average rating factor is at 'B' compared to 'B/B-' at the last review. Fitch currently considers 2.8% of the portfolio (excluding cash) rated in the 'CCC' category or lower, decreased from 3.3% at the last review, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. The portfolio is diversified with 201 obligors, and invested in 95.41% senior secured loans, 4.56% second lien loans, and 0.03% senior unsecured loans. Currently, 89.4% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.
The Stable Outlook reflects the expectation that the class A-1 notes have sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio based on the results of the Fitch sensitivity analysis described below.
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, breaches of concentration limitations or portfolio quality covenants, and overcollateralization (OC) or interest coverage (IC) test breaches. Fitch conducted rating sensitivity analysis on the closing date of Regatta II, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.
Regatta II is an arbitrage, cash flow collateralized loan obligation (CLO) managed by Napier Park Global Capital. The transaction remains in its reinvestment period, which is scheduled to end in January 2017. During the reinvestment period discretionary sales are permitted up to 30% 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 cash flow modeling was conducted.
Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on February 22, 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:
--$256,500,000 class A-1 notes at 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2, B, C, D, and LP Certificates.
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' (Jul. 25, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014)
--'Regatta II Funding L.P. New Issue Report' (Feb 22, 2013);
--'Regatta II Funding L.P. - Appendix' (Feb 22, 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
Regatta II Funding L.P. -- Appendix
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=702469
Regatta II Funding L.P.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701849
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=966975
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