TEXT-Fitch affirms four Avoca CLOs

Feb 07 - Fitch Ratings has affirmed Avoca CLO V plc; Avoca CLO VI plc; Avoca CLO VII plc; and Avoca CLO VIII Ltd . A full list of rating actions is at the end of this comment.

The performance of all four portfolios has stabilised over the past two years although each has slightly deteriorated since the last review in April 2011.The 'CCC'and below bucket ranges from 7.9% for Avoca CLO VIII to 14.3% for Avoca CLO V. This compares with a range of 4.6% (Avoca CLO VIII) to 10.1% (Avoca CLO V) in April 2011.

The over-collateralisation (OC) tests have been stable for all four transactions with the class A and B tests always in compliance. The mezzanine OC tests are failing for Avoca CLO V but passing for the remaining deals. The junior OC test and the interest diversion test are failing for all four transactions. Breaches of the OC tests have triggered the use of some interest proceeds for the sequential repayment of principal on the notes.

The affirmation of all notes reflects adequate levels of credit enhancement for their ratings. All four transactions have accumulated additional CE since April 2011. Fitch expects the transactions to benefit from more rapid deleveraging following the end of their respective reinvestment periods. Avoca CLO V has the earliest scheduled reinvestment period end in August 2012, while the other transactions are expected to enter the amortisation phase during 2013 and 2014.

Fitch believes that a material risk for the transactions is that the underlying assets' maturity may extend beyond their reported weighted average life. While none of the transaction portfolios currently contains assets with legal final maturities beyond the maturity of the respective securitisation, there is a risk that existing assets might be amended and have their maturities extended. Fitch incorporated this extension risk into its analysis of the portfolios.

The Negative Outlooks on the mezzanine and junior notes reflect their vulnerability to a clustering of defaults and negative rating migration in the European leveraged loan market due to the approaching refinancing wall.

Avoca CLO V plc; Avoca CLO VI plc; Avoca CLO VII plc; and Avoca CLO VIII Ltd are securitisations of primarily senior secured loans, unsecured loans, mezzanine loans and high-yield bonds. The transactions closed between 2006 and 2007. The transaction portfolios are actively managed by Avoca Capital Holdings.

The rating actions are as follows:

Avoca CLO V plc

EUR215.6m class A1A (ISIN XS0256535567): affirmed at 'AAAsf'; Outlook Stable

EUR60.9m class A1B (ISIN XS0256536029): affirmed at 'AAAsf'; Outlook Stable

EUR46.5m class A2 (ISIN XS0256536532): affirmed at 'AAAsf'; Outlook Stable

EUR34.5m class B (ISIN XS0256536888): affirmed at 'AAsf'; Outlook Stable

EUR23.5m class C1 (ISIN XS0256537423): affirmed at 'BBBsf'; Outlook Negative

EUR9.5m class C2 (ISIN XS0256538157): affirmed at 'BBBsf'; Outlook Negative

EUR22.5m class D (ISIN XS0256538405): affirmed at 'BBsf'; Outlook Negative

EUR22.0m class E (ISIN XS0256539122): affirmed at 'Bsf'; Outlook Negative

EUR12.3m class F (ISIN XS0256539635): affirmed at 'CCCsf'; Recovery Estimate is RE 0%

Avoca CLO VI plc

EUR300.7m class A1 (ISIN XS0272579763): affirmed at 'AAAsf'; Outlook Stable

EUR64.0m class A2 (ISIN XS0272580266): affirmed at 'AAAsf'; Outlook Stable

EUR19.4m class B (ISIN XS0272580779): affirmed at 'AAsf'; Outlook Stable

EUR31.5m class C (ISIN XS0272580936): affirmed at 'Asf'; Outlook Negative

EUR20.0m class D (ISIN XS0272582395): affirmed at 'BBBsf'; Outlook Negative

EUR23.9m class E (ISIN XS0272583286): affirmed at 'B+sf'; Outlook Negative

EUR10.0m class F (ISIN XS0272583955): affirmed at 'B-sf'; Outlook Negative

EUR5.1m class V (ISIN XS0272586891): affirmed at BBBsf; Outlook Negative

Avoca CLO VII plc

EUR284.0m class A-1 (ISIN XS0289562745): affirmed at AAAsf; Outlook Stable

EUR62.5m class A-2 (ISIN XS0289563396): affirmed at AAAsf; Outlook Stable

EUR145.0m class A-3 (ISIN XS0289564014): affirmed at AAAsf; Outlook Stable

EUR48.5m class B (ISIN XS0289565763): affirmed at AAsf; Outlook Stable

EUR42.0m class C1 (ISIN XS0289566571): affirmed at Asf; Outlook Stable

EUR4.5m class C2 (ISIN XS0290383412): affirmed at Asf; Outlook Stable

EUR23.0m class D1 (ISIN XS0289566902): affirmed at BBBsf; Outlook Negative

EUR8.5m class D2 (ISIN XS0290383768): affirmed at BBBsf; Outlook Negative

EUR28.3m class E1 (ISIN XS0289567546): affirmed at Bsf; Outlook Negative

EUR2.8m class E2 (ISIN XS0290384493): affirmed at Bsf; Outlook Negative

EUR14.0m class F (ISIN XS0289568437): affirmed at CCCsf; Recovery Estimate is RE 0%

EUR40.0m class V (ISIN XS0290386431): affirmed at AAAsf; Outlook Stable

Avoca CLO VIII Ltd

EUR295.9m class A1 (ISIN XS0312372112): affirmed at 'AAAsf'; Outlook Stable

EUR52.6m class A2 (ISIN XS0312377772): affirmed at 'AAAsf'; Outlook Stable

EUR34.0m class B (ISIN XS0312378747): affirmed at 'AAsf'; Outlook Stable

EUR30.0m class C (ISIN XS0312379984): affirmed at 'BBBsf'; Outlook Negative

EUR21.5m class D (ISIN XS0312380305): affirmed at 'BBsf'; Outlook Negative

EUR21.5m class E (ISIN XS0312380727): affirmed at 'Bsf'; Outlook Negative

EUR8.0m class U (ISIN 0312381451): affirmed at 'BBsf'; Outlook Negative