RPT-Fitch affirms Avoca CLO VII plc's notes
Dec 20 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Avoca CLO VII plc's notes, as follows:
EUR283.9m 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 Revised to Stable from Negative
EUR8.5m class D2 (ISIN XS0290383768): affirmed at 'BBBsf'; Outlook Revised to Stable from Negative
EUR28.3m class E1 (ISIN XS0289567546): affirmed at 'Bsf'; Outlook Revised to Stable from Negative
EUR2.8m class E2 (ISIN XS0290384493): affirmed at 'Bsf'; Outlook Revised to Stable from Negative
EUR14.0m class F (ISIN XS0289568437): affirmed at 'CCCsf' RE 50%
EUR40.0m class V (ISIN XS0290386431): affirmed at 'AAAsf'; Outlook Stable
KEY RATING DRIVERS
The affirmation reflects the transaction's stable performance since the previous review and the available credit enhancement. The exposure of 'CCC' rated and below assets has reduced to 2.11% in November 2013 from 3% reported at the time of the previous review. The Fitch PCM Rating factor has improved to 32.53 from 34.14. In the latest report the transaction reported two defaulted assets totalling EUR3m with the expected recovery rate of 56%.
The portfolio exposure continues to be concentrated to core European countries where France, Germany, United Kingdom and Netherlands account for 73.4% of the portfolio assets as compared to 70.54% in the previous review. The three largest industries are Business Services, Cable and General Retail representing 12.6%, 9.3% and 7.9% respectively as compared to the three largest industries at the time of the previous review being Business Services, Broadcasting and Media and Telecommunications.
The Outlook revision on the junior notes reflects the improved portfolio credit quality, increased in weighted average spread to 4.07% in November 2013 from 3.78% at the time of the previous review and smoothing of the maturity profile. The affirmation of the class V combination notes reflects the affirmation of its components, class A-1, A-2 and A-3. The class V notes' rating addresses the timely payment of interest and the ultimate repayment of principal by the stated maturity date.
Fitch ran various rating sensitivity stresses on the transaction to outline the impact on the notes' ratings if the key risk drivers - default rates and recovery rates - were stressed. Increasing the default probability by 25% would likely result in a downgrade of up to two notches on the mezzanine and junior notes. Furthermore, applying a recovery rate haircut of 25.0% on all the assets would likely result in a downgrade of up to one notch on the mezzanine notes and junior notes. In both the scenarios there would be no impact on the senior notes' ratings.
Avoca CLO VII plc is a securitisation of mainly European senior secured loans, with the total note issuance of EUR711m invested in a portfolio of EUR663m. The portfolio is actively managed by Avoca Capital Holdings. The transaction's reinvestment period ends in May 2014 therefore the manager can reinvest all principal proceeds subject to meeting certain criteria.
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