Reuters: Financial Services and Real Estate: TEXT-Fitch assigns final ratings to LCM XI

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TEXT-Fitch assigns final ratings to LCM XI May 24th 2012, 19:24 Thu May 24, 2012 3:24pm EDT May 24 - Fitch Ratings has assigned the following ratings to the class X and class A notes of LCM XI Limited Partnership (LCM XI): --$3,000,000 class X 'AAAsf'; Outlook Stable; --$307,000,000 class A 'AAAsf'; Outlook Stable. The ratings are based upon the 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 X and A notes are unlikely to be adversely affected by foreseeable levels of defaults. The class X and A notes perform strongly in Fitch's cash flow modeling scenarios, as displayed by their resilience in stressed scenarios featuring default levels of up to 100% and 61.6%, respectively and with average recoveries as low as 37.8% in an 'AAAsf' stress scenario. Fitch's stress and rating sensitivity analysis will be discussed in the new issue report that will be available shortly at 'www.fitchratings.com'. LCM XI is an arbitrage, cash flow collateralized loan obligation (CLO) that will be managed by LCM Asset Management LLC (LCM). The net proceeds from the note issuance will be invested in an approximately $470 million portfolio of primarily senior secured leveraged loans. At closing, approximately 93% of the portfolio has been purchased, with the remainder identified but not yet traded. Fitch anticipates the portfolio to have an average credit quality of 'B/B-' following settlement of all identified investments. LCM XI has a four-year reinvestment period, scheduled to end in April 2016. During the reinvestment period discretionary trading is permitted up to 20% of the portfolio balance per year. Sales of defaulted, credit-risk and credit-improved securities are permitted at any time, including after the reinvestment period. The manager also has the ability to reinvest unscheduled principal proceeds after the reinvestment period, including sales proceeds from the disposal of credit-risk loans. Loans purchased after the reinvestment period are generally required to have ratings at least equal to the rating of the disposed loan, and stated maturities no later than that of the disposed loan. All reinvestments are subject to collateral quality and coverage tests, as well as portfolio concentration limitations. The concentration limitations outlined in the transaction documents include a 7.5% maximum for assets rated 'CCC+' or below (as defined by S&P) and a 10% total maximum exposure to second lien loans and bonds. The transaction is covenanted to a maximum weighted average life of 8.0 years and steps down with the passage of time. The asset manager has the flexibility to select the required levels of collateral quality tests, such as weighted average spread and weighted average life. However, a maximum Moody's weighted average rating factor test of 3200 ('B/B-') further constrains collateral quality. The class X and A notes have been assigned a Stable Outlook due to Fitch's expectation of steady performance through anticipated levels of default and the various forms of credit enhancement available to the notes. 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 provided by the arranger, Morgan Stanley & Co. LLC and the public domain. Fitch's counterparty criteria are under review and currently subject to an exposure draft consultation. The exposure draft proposals, if adopted into criteria, are not expected to result in rating action on existing transactions; however this cannot be precluded if the final revised criteria differ materially from the exposure draft proposals. Applicable Criteria & Related Research: --'Global Structured Finance Rating Criteria' (Aug. 4, 2011); --'Global Rating Criteria for Corporate CDOs' (Aug. 10, 2011); --'Global Criteria for Cash Flow Analysis in CDOs' (Sept. 15, 2011); --'Criteria for Interest Rate Stresses in Structured Finance Transactions' (March 20, 2012); --'Counterparty Criteria for Structured Finance Transactions' (March 12, 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 Link this Share this Digg this Email Reprints

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