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April 30 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings notes that the ratings of Grosvenor Place CLO 2013-1 B.V.’s notes are not affected by either the earlier loss or the release of the interest reserve, as all the coverage tests are still in compliance and the interest reserve was factored into the initial analysis. In Fitch’s view, the performance to date is in line with the expectation at closing.
Grosvenor Place CLO 2013-1 B.V. went effective on the 17th of February. Following the effective date but prior to the first payment date the transactions aggregated principal balance was reduced below the reinvestment target par amount due to the sale of a credit risk obligation at a substantial discount to the purchase price. As a result the transaction entered a restricted trading period.
Although the manager was able to build par which offset some of the loss, the aggregated principal balance remained approximately EUR1.2m below the reinvestment target par amount on the first payment date on 22 April 2014. Despite the shortfall the manager chose to release an interest reserve that was funded from note issuance proceeds as part of the interest priority of payment. As the transaction is passing all of its par value tests the amount of the interest reserve was ultimately paid to equity holders on the first payment date.
While the manager acted in accordance with the transaction documentation the manager had discretion to allocate some of the interest reserve in the supplemental reserve account to be reinvested in new collateral proceeds to make up for the earlier losses. In the specific example, the manager chose to act in the interest of the equity holders.
In this transaction the manager retained a vertical slice composed of 5% of each note class in the capital structure.