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4 years ago
TEXT-Fitch raises 2 classes, affirms 3 classes of Hamlet II
February 22, 2013 / 5:41 PM / 4 years ago

TEXT-Fitch raises 2 classes, affirms 3 classes of Hamlet II

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Feb 22 - Fitch Ratings has taken the following rating actions on notes
issued by Hamlet II Ltd./LLC. (Hamlet II):

--$137,900,000 class A-1 notes affirmed at 'AAAsf'; Outlook Stable;
--$210,000,000 class A-2a notes affirmed at 'AAAsf'; Outlook Stable;
--$37,100,000 class A-2b notes affirmed at 'AAAsf'; Outlook Stable;
--$30,000,000 class B notes upgraded to 'AAsf' from 'Asf'; Outlook revised to
Stable from Positive;
--$85,000,000 subordinated notes upgraded to 'BBBsf' from 'BBB-sf'; Outlook

The upgrades and affirmations are based on the stable performance of the
portfolio combined with the steadily increasing degrees of credit enhancement
available to the rated notes. Credit enhancement levels continue to increase as
a result of a structural feature that diverts excess interest proceeds to
purchase additional collateral rather than paying any amounts to the
subordinated notes during the reinvestment period. In Fitch's calculations
approximately $84.6 million of interest proceeds that would have otherwise been
paid to the subordinated notes has been reinvested since the close of the
transaction, including $22.4 million of such proceeds being diverted since
Fitch's last rating actions in March 2012. Total collateral par plus principal
cash has increased to approximately $570 million as of the Feb. 4, 2013 trustee
report from an initial target par amount of $495 million at closing.

As of the most recent trustee report exposure to 'CCC' rated collateral is
approximately 1.6%, there are no defaulted assets in the portfolio, and in
Fitch's opinion the average credit quality of the portfolio remains in the same
range ('B+/B') as at Fitch's last review. The overcollateralization (OC) ratio
currently stands at 147.9% compared to a value of 129.1% at the effective date
and a 120.6% trigger, while the interest coverage (IC) test is significantly in
compliance with a calculated 1344.2% ratio versus a 115% trigger level. All
concentration limitations and collateral quality tests are within the
permissible limits. Exposure to structured finance assets is capped at 5%, with
2.5% of the portfolio currently invested in such securities primarily in the
form of other CLOs.

In November 2012 actions were taken to extend the transaction's reinvestment
period by one year. The transaction's reinvestment period will now end in
November 2014 as opposed to the original November 2013 scheduled end. As a
result of the extension the weighted average life (WAL) trigger was also
extended by one year and portfolio trading has led to the current portfolio
having a WAL of 5.2 years, similar to the WAL at Fitch's last review, while the
maximum permitted WAL is currently 6.25 years.

Due to the extension of the reinvestment period and the ability of the manager
to actively turnover the portfolio during the reinvestment period, Fitch
analyzed a sensitivity scenario in addition to its analysis of the current
characteristics of the collateral portfolio as part of this review. Fitch's
sensitivity scenario included extending the risk horizon of the portfolio to the
maximum permitted 6.25 years and reducing both the average credit quality and
the weighted average spread of the portfolio. The 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. These default and recovery levels
were then utilized in Fitch's cash flow model under various default timing and
interest rate stress scenarios, as described in the report 'Global Criteria for
Cash Flow Analysis in CDOs'.

Fitch's analysis of the current portfolio, in addition to the sensitivity
scenario, showed that the increased credit enhancement provided to the class B
notes and the subordinated notes is sufficient to support higher rating levels
in line with the upgrades reflected above. The class A-1, class A-2a and class
A-2b notes have also benefited from the increased credit enhancement levels and
are not expected to experience rating volatility in the near term, which
supports Fitch's affirmation and Stable Outlook on these notes.

Hamlet II is a revolving cash flow transaction that closed on Nov. 21, 2006 and
is managed by Octagon Credit Investors, LLC. The reinvestment is scheduled to
end in November 2014, and the stated maturity of the transaction is in May 2021.
The portfolio currently consists of 89.6% senior secured loans with the
remainder consisting of senior unsecured bonds, second lien loans, and
structured finance assets.

Additional information is available at ''. 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 information used to assess these ratings was sourced from the periodic
trustee reports, note valuation reports, the asset manager, and the public

Applicable Criteria and 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.
25, 2013);
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).

Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Global Criteria for Cash Flow Analysis in CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions
Counterparty Criteria for Structured Finance Transactions

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