Fitch Affirms Mercer Field CLO LP; Revises Outlook on One Class

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed five classes of notes, as well as the exchangeable combination notes, issued by Mercer Field CLO LP (Mercer Field CLO). Fitch has also revised the Outlook on the exchangeable combination notes to Positive from Stable. A complete list of rating actions follows at the end of the release.

KEY RATING DRIVERS

The affirmations are based on the stable performance of the underlying portfolio, the sufficient credit enhancement available to the notes, and the cushions available in the CLO's cash flow modeling results. As of the October 2015 trustee report, the transaction continues to pass all coverage tests and collateral quality tests. Fitch's cash flow analysis also indicates each class of notes is passing all nine interest rate and default timing scenarios at or above their current rating levels.

The loan portfolio par amount plus principal cash is approximately $1.06 billion, compared to the balance of $1.07 billion at the last review in December 2014, resulting in relatively stable credit enhancement levels. The weighted average spread (WAS) of the portfolio has tightened to 4.5% from 4.7%, relative to a minimum WAS trigger of 4.4%, as reported by the trustee. The portfolio, excluding cash, is invested in 98.4% senior secured loans and 1.6% senior secured bonds, and approximately 91% of the portfolio has strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher.

There is currently one defaulted loan comprising 0.4% of the portfolio, including principal cash, and the performing portfolio remains in the 'B/B-' range. Fitch considers 9% of the collateral assets to be rated in the 'CCC' category, according to Fitch's Issuer Default Rating (IDR) Equivalency Map, versus 9.6% of the loan portfolio in the last review. Of the 9% 'CCC' concentration, approximately 5.5% does not have a public rating or a Fitch credit opinion.

The ratings of the Mercer Field CLO notes are not expected to experience ratings volatility in the near term, supporting their Stable Outlooks. The revision of the Outlook on the exchangeable combination notes to Positive from Stable reflects the amortization activity of the notes since inception. To date, the notes have received approximately $69 million (20.8% of the original balance) in proceeds from the underlying Mercer Field CLO components. As a result, the combination notes are able to pass at higher rating stresses in the cash flow model, exhibiting sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio.

RATING SENSITIVITIES

The ratings of the notes may be sensitive to the following: asset defaults, significant negative credit migration, lower than historically observed recoveries for defaulted assets, and breaches of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of Mercer Field CLO, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities. Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Jan. 18, 2013.

A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is available by accessing the reports and links indicated below.

Mercer Field CLO is an arbitrage cash flow collateralized loan obligation (CLO) that is managed by Guggenheim Partners Investment Management, LLC (GPIM). The transaction remains in its reinvestment period, which is scheduled to end in December 2016.

The exchangeable combination notes consist of underlying components from the class C, class D and class E notes, the unrated income notes and a Fannie Mae (FNMA) principal-only strip scheduled to mature in May 2030 (the underlying specified security). Fitch expects a decreasing reliance on the credit support provided by the Fannie Mae strip if the combination notes continue to amortize and the underlying loan portfolio of Mercer Field CLO continues to exhibit stable performance.

This review was conducted under the framework described in the report 'Global Rating Criteria for CLOs and Corporate CDOs' using Fitch's Portfolio Credit Model (PCM) to project 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 combinations of default timing and interest rate stress scenarios, as described in the report. The cash flow model was customized to reflect the transaction's structural features.

DUE DILIGENCE USAGE

No third party due diligence was reviewed in relation to this rating action.

Fitch has affirmed the following ratings:

--$556,500,000 class A notes at 'AAAsf'; Outlook Stable;

--$154,350,000 class B notes at 'AAsf'; Outlook Stable;

--$78,750,000 class C notes at 'Asf'; Outlook Stable;

--$65,100,000 class D notes at 'BBBsf'; Outlook Stable;

--$60,480,000 class E notes at 'BBsf'; Outlook Stable;

--$263,570,628 exchangeable combination notes at 'BBB-sf'; Outlook revised to Positive from Stable.

Fitch does not rate the income notes.

Additional information is available at www.fitchratings.com.

Sources of Information:

The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, GPIM, and the public domain.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Global Rating Criteria for CLOs and Corporate CDOs - Amended (pub. 12 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873664

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 09 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863276

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

Mercer Field CLO LP -- Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698491

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=994347

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=994347

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151118006569/en/

Fitch Ratings
Primary Surveillance Analyst
Felix Chen
Associate Director
+1-212-908-9154
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Alina Pak, CFA
Senior Director
+1-312-368-3184
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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