Feb 21 - Fitch Ratings has assigned the following rating to the class A-1
notes of Regatta II Funding L.P. (Regatta II Funding):
--$256,500,000 class A-1 notes 'AAAsf'; Outlook Stable.
The rating is based upon the credit quality, seniority, and composition of the
portfolio of assets along with credit enhancement available to the notes through
subordination, the application of excess spread, and other structural protection
features. In Fitch's view, the ratings of the class A-1 notes are unlikely to be
adversely affected by foreseeable levels of defaults.
Regatta II Funding is an arbitrage cash flow collateralized loan obligation
(CLO). Net proceeds from the note issuance will be invested in an approximately
$400 million portfolio of primarily senior secured leveraged loans. The latest
portfolio provided to Fitch by the arranger, Citigroup Global Markets Inc., on
Feb. 12, 2013 represented that approximately 69.5% of the portfolio assets had
been purchased with the remaining 30.5% still unidentified. Fitch's analysis is
primarily based off of a Fitch stressed portfolio that incorporated adjustments
to the indicative portfolio to account for various concentration limitations and
collateral quality metrics permitted by the transaction documents.
The class A-1 notes perform strongly in Fitch's cash flow modeling scenarios, as
displayed by their resilience in stressed scenarios featuring default levels of
up to 62.2% and with average recoveries as low as 34.2% in an 'AAAsf' stress
scenario. Fitch's stressed portfolio and rating sensitivity analysis will be
discussed in the new issue report that will be available shortly at
Regatta II Funding has a four-year reinvestment period, scheduled to end in
January 2017, as well as a two-year non-call period that will end in January
2015. 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.
The transaction features portfolio concentration limitations and degrees of
credit enhancement available to the class A-1 notes that are consistent with
recent CLO issuance. The portfolio concentration limitations include a maximum
7.5% allowance for assets rated 'CCC+' or below (as defined by S&P) and a 10%
total maximum exposure to assets that are not senior secured loans, such as
bonds and second lien loans. The transaction's initial weighted average life
covenant of 8.25 years steps down with the passage of time. As with most other
recent CLOs rated by Fitch the asset manager has the flexibility to select the
required levels of various collateral quality tests, such as the minimum
weighted average spread and weighted average recovery rate.
The class A-1 notes have been assigned a Stable Outlook based on Fitch's
expectation of steady performance through anticipated levels of default and the
various forms of credit enhancement available to the notes.
The transaction will initially be managed by Citigroup Alternative Investments
LLC (CAI). CAI is currently in the process of transferring its hedge fund and
CLO units, currently known as Citi Capital Advisors (CCA), into a newly formed
asset management company to be named Napier Park Global Capital (Napier Park).
The principal CLO management employees of CAI are included in the transaction
and expected to join Napier Park when the transaction closes, which is
anticipated to occur in the first quarter of 2013. Upon completion of this
transaction collateral management duties for Regatta II Funding will be assigned
to Napier Park without seeking any noteholder consent, as provided for in the
Collateral Management Agreement. As part of its analysis, Fitch's Funds and
Asset Manager Ratings Group (FAM) evaluated CAI with particular focus on its CCA
operating unit. Fitch determined CAI's capabilities satisfactory in the context
of the ratings assigned to the transaction and the investment parameters that
govern CAI's activities. Fitch's FAM group also determined that the Napier Park
entity will also be satisfactory for management of the CLO.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
The sources of information used to assess these ratings were the transaction
documents and other materials provided by the arranger, Citigroup Global Markets
Inc., and the public domain.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2012);
--'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan.
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).
Applicable Criteria and Related Research:
Global Criteria for Cash Flow Analysis in CDOs
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance Transactions
Criteria for Interest Rate Stresses in Structured Finance Transactions