Fitch Rates Anchorage Capital CLO 3, Ltd./LLC Refinancing Notes

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'AAAsf' rating to the class A-1-R notes issued by Anchorage Capital CLO 3, Ltd./LLC. The Rating Outlook is Stable.

KEY RATING DRIVERS

Anchorage Capital CLO 3, Ltd./LLC issued class A-1-R, A-2a-R, A-2b-R and B-R notes (collectively, the refinancing notes) and applied the net issuance proceeds thereof to redeem the class A-1, A-2a, A-2b and B notes at par plus accrued interest on the refinancing date of Oct. 28, 2016. No other classes of notes were refinanced.

The refinancing notes have the same terms as the previously outstanding classes except that the stated spreads/coupons have been reduced. Spreads over LIBOR on the class A-1-R, A-2a-R, and B-R notes decreased to 1.43%, 2.05%, and 2.65%, respectively, from 1.50%, 2.25%, and 3.00%, respectively. The fixed coupon on the class A-2b-R notes also decreased to 3.23% from 4.45%.

The reduction in the cost of the liabilities is viewed as credit positive and no other material changes were made to the capital structure or underlying portfolio as a result of the refinancing. The transaction is still its reinvestment period (ending April 2018) and continues to display stable performance since Fitch's last review in January 2016. All coverage tests continue to pass, and the rating default rate (RDR) and rating loss rate (RLR) for the current portfolio, plus losses to date, are still lower than the RDR and RLR modelled at close. As a result, the modelled Fitch stressed portfolio at close continues to serve as a proxy, and updated cash flow model analysis was not conducted for this rating action. Fitch has determined that the rating on the class A-1-R notes shall be assigned at the same rating level ('AAAsf'; Outlook Stable) as the original class A-1 notes.

The loan portfolio par amount plus principal cash is approximately $497.9 million, as of the September 2016 trustee report. All collateral quality tests and concentration limitations are in compliance, and there are no defaulted assets in the current portfolio. The current weighted average spread (WAS) is 4.58%, versus a minimum WAS trigger of 4.20%. Additionally, the Fitch weighted average rating factor remains at 'B/B-', based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Additionally, approximately 90.5% of the portfolio has strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher.

The Stable Outlook on the class A-1-R notes reflects the expectation that these notes have a sufficient level of credit protection to withstand potential deterioration in the credit quality of the portfolio in stress scenarios commensurate with such class's rating.

RATING SENSITIVITIES

The rating of the class A-1-R notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', portions of the portfolio being placed on Rating Watch Negative, overcollateralization or interest coverage test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of Anchorage Capital CLO 3, Ltd./LLC, 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. 7, 2015.

DUE DILIGENCE USAGE

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this refinancing. Offering documents for U.S. CLO transactions do not typically include RW&Es that are available to investors and that relate to the asset pool underlying the security. Therefore, Fitch credit reports for U.S. CLO transactions will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 31, 2016.

Fitch has assigned the following rating:

--$300,000,000 class A-1-R notes 'AAAsf'; Outlook Stable.

Class A-1 notes have been marked 'paid-in-full' (PIF).

Fitch does not rate the class A-2a-R, A-2b-R, B-R, C, D, E and subordinated notes.

Sources of Information:

Sources of information used to assess this rating were provided by the arranger (J.P. Morgan Securities LLC), periodic trustee reports and the public domain.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Sep 2016)

https://www.fitchratings.com/site/re/887497

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013980

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013980

Endorsement Policy

https://www.fitchratings.com/regulatory

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Fitch Ratings
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Source: Fitch Ratings

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