Date post: | 30-Oct-2015 |
Category: |
Documents |
Upload: | deep-patel |
View: | 71 times |
Download: | 0 times |
of 19
Structured Finance
www.fitchratings.com June 7, 2013
Structured Credit / U.S.A.
Avery Point II CLO, Limited/Corp.
Presale Report
Transaction Summary
Avery Point II CLO, Limited and Avery Point II CLO, Corp. (together, Avery Point II, or the issuer) is
an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Sankaty
Advisors, LLC (Sankaty). Net proceeds from the issuance of the secured and subordinated notes
will be used to purchase a portfolio of approximately $500.0 million of primarily leveraged loans. The
CLO will have a four-year reinvestment period, expected to end in July 2017.
Key Rating Drivers
Sufficient Credit Enhancement: Credit enhancement (CE) of 39.2% for class A notes, in
addition to excess spread, is sufficient to protect against portfolio default and recovery rate
projections in an AAAsf stress scenario. The level of CE for class A notes is above the average
CE of recent CLOs.
B/B Asset Quality: The average credit quality of the indicative portfolio is B/B, which is
comparable to recent CLOs. Issuers rated in the B category denote a highly speculative credit
quality; however, class A notes are unlikely to be affected by the foreseeable level of defaults. Class
A notes are robust against default rates of up to 67.8%.
Strong Recovery Expectations: The indicative portfolio consists of 95.8% senior secured loans,
approximately 91.5% of which have strong recovery prospects or a Fitch Ratings-assigned
recovery rating of RR2 or higher. This is in line with the seniority profile of recent vintage CLOs.
Inside This Report Page Transaction Summary 1 Key Rating Drivers 1 Additional Rating Drivers 2 Transaction Comparison 2 Asset Analysis 2 Cash Flow Analysis 4 Rating Sensitivity 7 Portfolio Management 9 Additional Structural Features 9 Counterparty Risk 11 Transaction and Legal Structure 12 Criteria Application, Model, and Data Adequacy 12 Performance Analytics 13
Appendices 1418
Related Presale Appendix
Avery Point II CLO Limited/Corp. (June 2013)
Related Criteria
Global Structured Finance Rating Criteria (May 2013)
Global Rating Criteria for Corporate CDOs (August 2012)
Global Criteria for Cash Flow Analysis in CDOs (September 2012)
Criteria for Interest Rate Stresses in Structured Finance Transactions (January 2013)
Counterparty Criteria for Structured Finance and Covered Bonds (May 2013)
Analysts Erika Tsang, CFA +1 212 908-0817 [email protected]
Robert Rhein +1 312 606-2314 [email protected]
Derek Miller +1 312 368-2076 [email protected]
Capital Structure
Class Expected Rating
Expected Outlook
Amount ($ Mil.) CE (%)
a
Interest Rate (%) Final Maturity TT (%) TTLM (x)
A AAAsf Stable 304.00 39.2 3mL + 1.11 July 2025 58.8 4.9
B-1 NR N.A. 46.00 25.0 3mL + 1.55 July 2025 N.A. N.A.
B-2 NR N.A. 25.00 25.0 3.21 July 2025 N.A. N.A.
C NR N.A. 36.00 17.8 3mL + 2.75 July 2025 N.A. N.A.
D NR N.A. 26.00 12.6 3mL + 3.45 July 2025 N.A. N.A.
E NR N.A. 24.00 7.8 3mL + 4.25 July 2025 N.A. N.A.
F NR N.A. 13.50 5.1 3mL + 5.10 July 2025 N.A. N.A. Subordinated
Notes NR N.A. 42.25 N.A. Residual July 2025 N.A. N.A.
Total 516.75
aCredit enhancement (CE) is based on the target par amount of $500.0 million. Notes: Expected ratings do not reflect final ratings and are based on information provided by the issuer as of June 7, 2013. These expected ratings are contingent on final documents conforming to information already received. Ratings are not a recommendation to buy, sell, or hold any security. The offering circular and other material should be reviewed prior to any purchase. TT
Tranche thickness. TTLM Tranche thickness loss multiple. NR Not rated. N.A. Not applicable.
Structured Finance
Avery Point II CLO, Limited/Corp. 2
June 7, 2013
Additional Rating Drivers
Consistent Portfolio Parameters
The portfolio will be actively managed and bound by concentration limitations and collateral
quality tests addressing various loan and structural characteristics. Aside from the lack of
limitation on assets that pay less frequently than quarterly, the concentration limitations and
collateral quality test levels presented to date are within the range of limits set in the majority of
recent CLOs. Fitch addressed the impact of the most prominent risk-presenting concentration
allowances and targeted test levels in its analysis.
Asset Analysis
The Fitch Portfolio Credit Model (PCM v2.3.2) was used to determine hurdle default rates
(rating default rates, or RDRs) and expected portfolio recovery rates (rating recovery rates, or
RRRs) for the AAAsf rating level. The PCM was run on the indicative portfolio, as well as a
Fitch stressed portfolio that was created according to the portfolio concentration limits and
collateral quality tests, as described below. Fitchs analysis focused on the Fitch stressed
portfolio, given the managers ability to reinvest principal proceeds.
The portfolio presented to Fitch on May 30, 2013 (the indicative portfolio) consists of 126
assets from 120 obligors, including 64 unidentified obligors with assumed loan characteristics
Related Research
Sankaty Advisors, LLC (October 2012)
U.S. Leveraged Finance Market Quarterly (First- Quarter Synopsis) (April 2013)
U.S. Leveraged Finance: Road to Recovery Ratings (February 2012)
CLO Market Quarterly (January 2013)
The structure and portfolio
composition of Avery Point II closely
resembles that of recently issued
CLOs, while the class A notes benefit
from a relatively higher degree of CE
than the average of recently rated
CLOs.
Transaction Comparison 1Q132Q13 CLOs
a
Transaction Avery Point II
CLO Race Point
VIII CLO Average Minimum Maximum
Target Par Amount ($ Mil.) 500.0 500.0 488.4 300.0 898.7
Reinvestment Period (Years) 4 4 4 2 4
Noncall Period (Years) 2 2 2 2 3
Notes CE
Senior Class (%) 39.2 38.0 36.9 33.3 42.4
Structure
Senior Overcollateralization (OC) Test A/B A/B A/B A/B A/B
Senior OC Test Level (%) 124.3 125.9 124.3 118.4 142.0
Portfolio Covenants and Concentration Limitations
Max. Initial WAL (Years) 8.0 8.0 7.9 6.9 8.5
Initial Target WARF 2800 2553 2725 2400 3150
Max. CCC Assets (%) 5.0 7.5 7.1 5.0 7.5
Min. WAS (%) 3.9 3.7 3.9 2.9 4.7
Actual WAS (%) 4.6 4.5 4.8 4.0 5.9
Max. Fixed Assets (%) 10.0 10.0 6.2 - 10.0
Min. WAC (%) 7.3 8.0 6.9 4.0 8.0
Max. Single Obligor (%) 2.5 2.5 2.5 2.0 3.0
Min. Senior Secured (%) 90.0 90.0 91.1 90.0 95.0
Max. 2nd Lien and Subordinate (%) 10.0 10.0 8.8 2.5 10.0
Max. Covenant-Lite (%) 40.0 50.0 50.4 35.0 70.0
Maximum Long-Dated Assets (%) 0.0 0.0 0.2 0.0 2.0
aIncludes CLOs backed by portfolios of broadly syndicated loans that priced from Jan. 1, 2013 through May 31, 2013.
Structured Finance
Avery Point II CLO, Limited/Corp. 3
June 7, 2013
comprising 38.7% of the portfolio. Fitch considers the indicative portfolio to be of similar
diversity in terms of obligor and industry concentrations, relative to recently issued CLOs.
Asset Quality
The weighted average rating of the indicative portfolio is B/B (as determined by Fitchs global
rating criteria for corporate CDOs). Fitch has an explicit rating or a credit opinion for 21 obligors from
the indicative portfolio comprising 23.3% of the total portfolio par balance; ratings for 37.9% of the
total portfolio were derived using Fitchs issuer default rating (IDR) equivalency map. In addition,
unidentified obligors were predominantly indicated to be within the B rating category; these obligors
were generally assumed to maintain these ratings in the Fitch stressed portfolio. As the transaction
documents do not contain a covenant for a maximum Fitch weighted average rating factor (WARF),
Fitch assumed the average portfolio quality remains in the B/B rating category in its construction
of the Fitch stressed portfolio (see the portfolio distribution in the Underlying Rating Distribution chart
below).
Fitch considers 4.8% of the indicative portfolio to be rated in the CCC category, while the
maximum permitted exposure to assets rated CCC (as defined by S&P) is 5.0%. Of this
amount, 1.6% of the indicative portfolio has no public rating or Fitch credit opinion and was
considered CCC. Fitch increased the CCC concentration for the Fitch stressed portfolio to
match the maximum permitted CCC exposure.
Asset Security
The indicative portfolio consists of 95.8% senior secured loans, 2.2% second lien loans, and 2%
bonds. Fitch has assigned asset-specific recovery ratings to 15.6% of the indicative portfolios
assets. In the case of assets for which no asset-specific recovery ratings have been assigned, Fitch
applied the standard Fitch recovery rate assumptions for assets based in the same jurisdiction and
having the same ranking in the capital structure (as determined via the agencys global rating criteria
for corporate CDOs).
The concentration limitations specify that senior secured loans and eligible investments must
represent at least 90.0% of the portfolio. Senior secured bonds, senior secured notes, high-
yield bonds, second lien loans, and senior unsecured loans in total cannot exceed 10.0% of the
portfolio. Adjustments were made to the Fitch stressed portfolio to mirror this distribution.
Distribution of Assets Treated CCC+ or Lower
Fitch IDR Mapping Portfolio (%)
Rated < or = CCC+ 2.3
B/Rating Outlook Negative 1.0
No Rating 1.6
Total 4.8
0
5
10
15
20
25
30
35
40
45
BBB BB BB B+ B B CCC+ CCC
Indicative Portfolio Fitch Stressed portfolio(%)
Underlying Rating Distribution(As of June 7, 2013)
Structured Finance
Avery Point II CLO, Limited/Corp. 4
June 7, 2013
Obligor and Industry Concentration
The concentration limitations allow exposure of up to 2.5% each for five obligors, which were
incorporated into the Fitch stressed portfolio. The remaining obligors may each constitute up to
2.0% of the portfolio. The transaction also allows for up to 12.0% concentration in each of three
industries and up to 15.0% for one additional industry, with a maximum 10.0% concentration
for remaining industries. Fitch accounted for the maximum allowable industry concentration in
its analysis of the Fitch stressed portfolio.
Cash Flow Analysis
Fitch used a customized proprietary cash flow model to replicate the principal and interest
waterfalls (described in detail in Appendix D, page 18) and various structural features of the
transaction to assess their effectiveness, including the structural protection provided by excess
spread diverted through the overcollateralization (OC) and interest coverage (IC) tests. Each
model run considers 12 stress scenarios to account for different combinations of default timings
and interest rate stresses, as described in Fitchs cash flow analysis criteria. The cash flow
model was run using the PCM outputs for the indicative portfolio, as well as for the Fitch
Top Five Obligor Concentrations
Obligor Fitch Rating Indicative
Portfolio (%) Fitch Stressed
Portfolio (%) Fitch Industry Seniority
1 BB 2.0 2.5 Metals & Mining Strong Recovery and Weak Recovery
2 B 2.0 2.5 Industrial/Manufacturing Rr1 (Outstanding: 91%100%)
3 BB 1.9 2.5 Energy Strong Recovery
4 CCC 1.6 1.6 Computers & Electronics Rr3 (Good: 51%70%)
5 B 1.6 1.6 Telecommunications Strong Recovery
Top Five Industry Concentrations
Industry Indicative Portfolio
(%) Fitch Stressed Porfolio (%)
Gaming and Leisure and Enterainment 11.3 15.0 Industrial/Manufacturing 9.4 12.0 Metals & Mining 9.1 12.0 Energy 8.8 12.0 Business Services 8.7 7.3
0
10
20
30
40
50
60
70
80
90
RR1 (Outstanding:91%-100%)
RR2 (Superior:71%-90%)
Strong Recovery RR3 (Good: 51%-70%)
Weak Recovery ModerateRecovery
Indicative Portfolio Fitch Stressed Portfolio(%)
Recovery Distribution(As of June 7, 2013)
Structured Finance
Avery Point II CLO, Limited/Corp. 5
June 7, 2013
stressed portfolio. Fitch assumed the class A, B-1, C, D, E and F notes earn a weighted
average cost of funding of 1.71% over three-month LIBOR and that the class B-2 notes earn a
fixed coupon of 3.2% in its cash flow analysis.
The transaction documents provide the portfolio manager the flexibility to choose certain
combinations of cases for compliance with the S&P CDO Monitor Test, namely the minimum
weighted average recovery rate (WARR), maximum WAL, and minimum weighted average
spread (WAS), toward which the portfolio will be managed. The portfolio manager will
determine the initial WARR, WAL, and WAS cases at or before the end of the ramp-up period.
More discussion on the use of these multiple parameters as a portfolio management tool can
be found in the Management to Dynamic Collateral Quality Tests section on page 9. Fitch
modeled the WAS at 3.9%, according to the initial level targeted by the portfolio manager, as
represented to Fitch.
Interest Income and LIBOR Floors
The calculation of the WAS includes additional spread above actual LIBOR from loans that
have a LIBOR floor mechanism in place. While LIBOR floors will create additional interest cash
flow for Avery Point II during periods of low LIBOR, the benefit is expected to disappear after
LIBOR reaches 1.5%. The indicative portfolios WAS is 4.6%, including the benefit for LIBOR
floors, while the same portfolio would lead to a WAS of 3.8% if LIBOR is increased above 1.5%.
Approximately 97.2% of the current indicative portfolio has LIBOR floors between 0.75% and
1.5%.
Fitchs analysis of the indicative portfolio accounted for the benefit of additional spread from
LIBOR floors, while the analysis of the Fitch stressed portfolio assumed all floating-rate assets
earn interest at the minimum WAS test level, which was represented to Fitch as initially 3.9%
over LIBOR. The transaction documents permit a maximum of 10.0% fixed-rate collateral with
a minimum weighted average coupon (WAC) of 7.25%. Fitch assumed a 10% fixed-rate
collateral bucket in its cash flow analysis of the Fitch stressed portfolio and assumed the
remaining 90.0% of the portfolio to pay on a floating-rate basis.
Interest Reserve Mechanism
The concentration limitations do not restrict the amount of assets that pay less frequently than
quarterly, though no assets may pay less frequently than semi-annually. Instead, if the
aggregate principal balance of assets that pay less frequently than quarterly exceeds 10%,
there is an interest smoothing mechanism senior to class A interest in the interest waterfall that
will deposit the liquidity reserve amount back into the interest collection account to be
distributed on the following payment date. The liquidity reserve amount is essentially the
excess, if any, of the interest received from semi-annual pay assets above the 10% threshold
over the amount of interest that would have been received from those assets had they been
quarterly pay.
The calculation method of the reserve and its placement in the waterfall effectively mitigates
the transactions exposure to assets that pay semi-annually in excess of 10%. Therefore, the
Fitch stressed portfolio assumed that 10% of the underlying assets pay interest less frequently
than quarterly.
Structured Finance
Avery Point II CLO, Limited/Corp. 6
June 7, 2013
Overcollateralization and Interest Coverage Tests
The structure includes standard OC tests, IC tests, and a reinvestment OC test. Failure of an
OC or IC test will result in interest or principal proceeds, as applicable, to be diverted to
redeem the rated notes sequentially. Failure of the reinvestment OC test during the
reinvestment period leads to the lesser of 50% of remaining interest proceeds and the required
cure amount to be reinvested in additional collateral assets. Failure of the reinvestment OC test
after the reinvestment period results in the lesser of 50% of remaining interest proceeds and
the required cure amount being used to redeem the notes. The IC tests are not applicable in
the priority of payments until the second payment date.
Effectiveness of Coverage Tests: May be Diminished by Discount Obligation Provisions
The transaction features discount obligation provisions that are standard among recent CLO
issuances. While discount obligations are generally included at their purchase price for purposes of
calculating OC tests, a senior secured loan will not be considered to be a discount obligation unless
it is rated B or higher by S&P and is purchased at a price below 80% of par. For senior secured
loans rated below B by S&P, the purchase price threshold increases to 85% of par. Since assets
purchased at a price below par, yet above the discount obligation thresholds, may be marked at par
for calculations of the OC and reinvestment OC test ratios, this may minimize the effectiveness of
these tests during the reinvestment period. The portfolio manager may potentially build par with the
purchases of assets priced below par, yet above discount obligation thresholds. Therefore, Fitch
considered a sensitivity scenario in which credit was not given to excess spread or the diversion of
interest proceeds through OC and reinvestment OC tests during the four-year reinvestment period.
Cash Flow Model Outputs
Break-even default rates (BDRs) show the maximum portfolio default rates the class A notes
could withstand in stress scenarios without experiencing a loss. BDRs for the class A notes
Coverage Tests (%)
Indicative Portfolio Fitch Stressed Portfolio
Trigger Initial Levela Cushion Initial Level
a Cushion
Overcollateralization (OC) Tests
Class A/B (Senior) OC Test 124.33 133.33 9.00 133.33 9.00
Class C OC Test 114.15 121.65 7.50 121.65 7.50
Class D OC Test 108.42 114.42 6.00 114.42 6.00
Class E OC Test 103.96 108.46 4.50 108.46 4.50
Interest Diversion Tests
Reinvestment OC Testb 102.37 105.37 3.00 105.37 3.00
Interest Coverage (IC) Tests
Class A/B (Senior) IC Test 120.00 386.26 266.26 330.19 210.19
Class C IC Test 110.00 326.28 216.28 278.91 168.91
Class D IC Test 105.00 286.74 181.74 245.11 140.11
aInitial OC levels based on target portfolio amount of $500 million.
bReinvestment OC Test trigger changes to 101.87% after the
reinvestment period.
Structured Finance
Avery Point II CLO, Limited/Corp. 7
June 7, 2013
were then compared with the PCM hurdle rates at the AAAsf rating stress. A rating committee
would typically expect the BDR to be above the PCM hurdle rate to achieve a given rating, in
this case AAAsf for the class A notes.
The table below presents the lowest BDR of the 12 stress scenarios. The class A notes passed
the PCM hurdle rate on both the indicative and Fitch stressed portfolio analysis in all 12 stress
scenarios. Fitch was comfortable assigning AAAsf ratings to the class A notes because the
agency believes the tranche can sustain a robust level of defaults, in line with an AAAsf stress
scenario, as well as due to the strong performance of the notes in several sensitivity scenarios.
Rating Sensitivity
In addition to Fitchs stated criteria, the agency analyzed the structures sensitivity to the potential
variability of key model assumptions. The rating sensitivity analysis is based on the Fitch stressed
portfolio. These sensitivities only describe the model-implied impact of a change in one or more of
the input variables. This is designed to provide information about the sensitivity of the rating to key
model assumptions. It should not be used as an indicator of possible future performance. The key
model assumptions analyzed are described below.
Rating Sensitivity to Default Probability
A default probability multiplier of 125% and 150% is applied to the default probability of each obligor.
Rating Sensitivity to Recovery Rates
A 75% and 50% multiplier is applied to asset-level recovery rates.
Rating Sensitivity to Correlation
A 2.0x base country correlation increase is applied.
Rating Sensitivity to Combined Stress
A default probability multiplier of 125%, recovery rate multiplier of 75%, and 2.0x base
correlation for the country are applied.
Rating Sensitivity to Inefficient Coverage Tests
OC and IC tests were not accounted for during the reinvestment period.
Break-Even Default Rates (%)
Portfolio Indicative Fitch Stresseda
Class Class A Class A
Break-Even Default Rate 70.0 67.8
Assumed Recovery Rate 37.3 34.7
PCM Hurdle Default Rate 55.2 62.3
Default Cushion 14.8 5.5
Default Timing Mid Mid
LIBOR Up Up
aFitch stressed portfolio based on eight-year WAL, 3.9% WAS, maximum second lien, and obligor and industry
concentrations.
Structured Finance
Avery Point II CLO, Limited/Corp. 8
June 7, 2013
Rating Sensitivity to Spread Compression over Two Years
The minimum WAS of the portfolio was reduced from the current covenanted level of 3.9% to
2.0%. The assumed portfolio WAL was also reduced by two years to six years; no credit
migration was assumed to occur.
Portfolio Management
Avery Point II will have a four-year reinvestment period, which is expected to expire in July 2017.
Discretionary sales are permitted at any time and are limited to 25% of the portfolio during the same
calendar year (as measured by the portfolio balance as of the beginning of such calendar year). The
portfolio manager will be permitted to sell defaulted, credit-risk, and credit-improved assets at any
time, including after the reinvestment period. Subject to certain criteria, all unscheduled principal
proceeds and proceeds from credit-risk and credit-improved sales may be reinvested after the
reinvestment period.
Rating Sensitivity Class A
Median Rating Lowest Rating
Rating Sensitivity to Default Probability (DP) 125% DP Multiplier AAA AA+
Rating Sensitivity to DP 150% DP Multiplier AA+ AA+
Rating Sensitivity to Recovery Rates (RRs) 75% RR Multiplier AAA AA+
Rating Sensitivity to RRs 50% RR Multiplier AA+ AA
Rating Sensitivity to Correlation 2.0x Base Correlation Increase AAA AAA Rating Sensitivity to Combined Stress 125% DP Multiplier, 75% RR Multiplier, 2.0x Base Correlation Increase AA AA
Rating Sensitivity to Inefficient Coverage Tests AA+ AA
Rating Sensitivity to Spread Compression over Two Years AAA AAA
Conditions to Reinvestment
During Reinvestment Period After Reinvestment Period
Type of Proceeds: Scheduled/Unscheduled Principal Payments, Discretionary Sales and Credit Improved Sales
Type of Proceeds: Credit Risk Sales and Defaulted Obligations Sales
Type of proceeds: Credit Risk sales
Type of proceeds: Credit Improved sales and Unscheduled Principal Payments
Collateral Quality Tests Satisfaction, or if failing, maintain or improve
Satisfaction, or if failing, maintain or improve (only applies to minimum fixed coupon, minimum floating
spread, and S&P minimum WARR tests)
Concentration Limitations Satisfaction, or if failing, maintain or improve Satisfaction, or if failing, maintain or improve
Coverage Tests Satisfaction, or if failing, maintain or improve Satisfaction of OC tests
Maturity Requirements N.A. Weighted average maturity of new asset must be same or
earlier than that of the related disposed obligation
Par Amount Requirements
RBC will be satisfied. APB of all additional collateral will at least equal the sales proceeds, or (ii)
RBC will be satisfied.
APB of additional collateral will at least equal the sales
proceeds, or (ii) RBC will be satisfied.
RBC will be satisfied.
Rating Requirements N.A. New asset must have same or better S&P rating than that of
the related disposed asset
S&P CDO Monitor Test Satisfaction, or if failing, maintain or improve N.A. N.A.
Note: Conditions to reinvestment outlined above assume additional assets meet the definition of a collateral obligation as defined in the indenture. APB Aggregate principal balance. RBC Reinvestment balance criteria. N.A. Not applicable.
Structured Finance
Avery Point II CLO, Limited/Corp. 9
June 7, 2013
Additional Portfolio Concentrations
In addition to the permitted CCC bucket, second lien loan, industry, and obligor
concentrations, the documents include other notable concentration limitations. Exposures to
fixed-rate assets, and deferrable interest loans, among others, are kept to a minimum.
Investments in structured finance assets, synthetic assets, and loans from emerging markets
are not permitted. The concentration limitations and collateral quality tests are further detailed
in Appendix D on page 18.
The indicative portfolio has a WAL of approximately 6.0 years, while the transaction is initially
covenanted to an eight-year maximum WAL that steps down with the passage of time. Fitch
assumed an eight-year WAL in the Fitch stressed portfolio. Additionally, the portfolio guidelines do
not permit long-dated assets.
Management to Dynamic Collateral Quality Tests
The minimum WAS, WARR, and WAL covenants will be selected on or prior to the last day of the
ramp-up period and thereafter can be changed by the portfolio manager at any time. The exact
combinations of the chosen covenants at any given time are determined based on the satisfaction of
a model that is not transparent to the investor. In Fitchs view, the key risks of relying on a third-party
modeling tool as a monitoring test are the lack of transparency and the potential variability of the
tool.
Fitch views several factors as mitigating the risk presented by the limited transparency in the
collateral quality parameters. First, the results of the S&P CDO Monitor Test must be maintained or
improved upon changes to any of the selected covenanted levels. Consequently, the introduction of
additional portfolio risk should be mitigated with a concurrent tightening of another covenant; for
example, to lower the applicable minimum WAS covenant, the minimum WARR would be
increased. Also, Fitch has assessed the capability of the portfolio manager to manage the
transaction, in accordance with the terms of the transaction documents, and has gained comfort with
the managers ability to adequately manage the Avery Point II portfolio. Additionally, Fitch has tested
various sensitivity scenarios, as discussed in this report, including a scenario evaluating the wide
spectrum of minimum WAS requirements permitted by the documents, which highlight the strong
performance of the notes in high default and/or low recovery scenarios, among others.
Additional Structural Features
Repurchased/Surrendered Notes
The transaction allows for notes to be surrendered without payment to noteholders. However,
surrendered notes will be deemed to remain outstanding for purposes of the OC test calculations
until all notes of the applicable class and any notes senior to such class are redeemed.
Optional Redemption/Refinancing
The transaction features standard optional redemption and refinancing provisions that may be
undertaken after the two-year noncall period expires at the direction of a majority of the
subordinated notes and with written consent of the portfolio manager. An optional redemption
consists of either liquidating the collateral (redemption) or acquiring a loan or issuing new notes
(refinancing). An optional redemption may only occur if the expected liquidation proceeds
and/or refinancing proceeds are sufficient to repay the full principal amount and any accrued
and unpaid fees, expenses, and interest amounts on all classes of notes. The holders of any
Structured Finance
Avery Point II CLO, Limited/Corp. 10
June 7, 2013
class of notes may agree by unanimous consent to decrease the redemption price for that
class of notes and receive a lesser amount in exchange for that redeemed class of notes.
This transaction also features the possibility for partial redemption via refinancing, where either a
majority of the subordinated noteholders or the portfolio manager may elect to redeem only one or
more classes of notes through a refinancing. New notes would be issued in the same amount as
those being replaced, and would have the same priority in the capital structure. The weighted
average spread over LIBOR or fixed rate of interest of the new class of notes would be less than or
equal to the weighted average spread or fixed interest rate of the notes being refinanced.
Fitchs credit view on these features is neutral, since repayment in whole of the applicable class of
notes is a prerequisite to any redemption or refinancing.
Re-Pricing of Notes
Following the noncall period, a majority of the subordinated notes or the portfolio manager may
direct the issuer to reduce the spread over LIBOR or fixed rate of interest on any class of notes (re-
pricing). Noteholders of the affected class will be notified at least 30 days prior to the proposed re-
pricing date, which notification will indicate the proposed spread and request for consent for the
proposed spread. Noteholders will need to provide written response if they do consent to the re-
pricing; a lack of response will be deemed a non-consent to the re-pricing. Any noteholders that do
not consent to the re-pricing may be required to sell their notes to other parties at a price not less
than par plus accrued interest.
Fitch views the re-pricing of the notes as similar to the traditional call features from earlier vintage
CLOs. This feature makes a call operationally easier to execute and provides the affected
noteholders the option to remain invested in a familiar transaction, which may have otherwise been
called by the equity investor.
Fitch expects to review the terms of any spread reduction, analyzing the then-current capital
structure and portfolio composition, and make a public comment, if appropriate. As long as the notes
remain outstanding, Fitch expects to maintain its rating, if applicable. Absent any salient credit
issues in the portfolio, Fitch expects the re-pricing of the notes would be a credit-neutral event at
worst and a modest credit-positive at best, since any reduction in spread of a CLO will result in a
lower cost of funding to the CLO and generate more excess spread that could be available in the
interest waterfall to pay notes following the failure of a coverage test.
Events of Default: Undercollateralization
An event of default (EOD) will occur if the ratio of the aggregate principal balance of the portfolio
(with no haircuts to discounted or CCC obligations but with defaulted obligations treated at market
value) to the aggregate outstanding amount of class A notes is less than 102.5%. If an EOD occurs
under this clause, holders of a supermajority of the controlling class may vote to accelerate the
transaction and declare all notes to be immediately due and payable. Fitch notes that this test is less
sensitive to early warning signs of portfolio deterioration than if the haircuts to discounted or CCC
assets were applied. However, given the voting threshold to direct the sale and liquidation of the
collateral, class A notes have a somewhat controlled exposure to market value losses should an
EOD occur (see Appendix D, page 18, for the par value EOD test calculation details).
The transaction also includes standard provisions for the potential liquidation of the collateral pool
after an EOD occurs. If an EOD has occurred and is continuing, and the notes have been
accelerated, a liquidation of all or part of the collateral pool may occur if either the expected
liquidation proceeds are sufficient to repay all classes of notes (other than the subordinated notes) in
Structured Finance
Avery Point II CLO, Limited/Corp. 11
June 7, 2013
full or if a liquidation is directed by more than two-thirds of each class of notes (other than the
subordinated notes), voting separately.
Counterparty Risk
Portfolio Manager
The transaction will be managed by Sankaty. As part of its analysis, Fitchs Fund and Asset
Manager Rating Group evaluated Sankaty and determined its capabilities satisfactory in the context
of ratings assigned to the transaction and investment parameters that govern Sankatys activities.
(For additional information, see Fitchs Asset Manager Profile Report in Appendix B, pages 1516.)
As compensation for managing the portfolio, the portfolio manager will receive senior and
subordinated investment management fees of 15 bps and 35 bps per annum, respectively, based
on the total portfolio size as of the beginning of each collection period. The senior management fee
is paid prior to class A note interest, while the subordinate management fee will be payable after all
note interest is paid and after the reinvestment OC test. Fitch views the asset management fees as
being in line with industry averages, which is an important factor in facilitating the replacement of a
portfolio manager in the event of the departure of key members of the management team or any
other form of wind-down, bankruptcy, or insolvency of the existing portfolio manager.
Hedge Counterparties
The floating rate notes and most of the indicative assets reference the same index, minimizing
basis risk. No hedging strategies are included in the analysis at this time.
Other Counterparties
Provisions for the eligible investments to be purchased with intra-period interest and principal
collections, as well as the rating requirements of the institutions at which the issuers various bank
accounts will be established, conform to Fitchs counterparty criteria for supporting note ratings of
AAAsf. Requirements for other counterparties, such as the trustee, collateral administrator, and
custodian, also conform to Fitch criteria.
Fitch views Sankaty as satisfactory for
the management of Avery Point II.
Structured Finance
Avery Point II CLO, Limited/Corp. 12
June 7, 2013
Transaction and Legal Structure
The notes will be issued by Avery Point II, a bankruptcy-remote, special-purpose vehicle organized
under the laws of the Cayman Islands and the state of Delaware. The notes are secured by the
underlying loan portfolio. Payments to the notes will be made quarterly and are expected to begin in
January 2014.
Disclaimer
For the avoidance of doubt, Fitch relies, in its credit analysis, on legal and/or tax opinions provided
by transaction counsel. As Fitch has always made clear, Fitch does not provide legal and/or tax
advice or confirm that the legal and/or tax opinions or any other transaction documents or any
transaction structures are sufficient for any purpose. The disclaimer at the foot of this report makes it
clear that this report does not constitute legal, tax, and/or structuring advice from Fitch and should
not be used or interpreted as legal, tax, and/or structuring advice from Fitch. Should readers of this
report need legal, tax, and/or structuring advice, they are urged to contact relevant advisers in the
relevant jurisdictions.
Criteria Application, Model, and Data Adequacy
Criteria Application
Key criteria reports used are Global Rating Criteria for Corporate CDOs, dated August 2012, and
Global Criteria for Cash Flow Analysis in CDOs, dated September 2012; both are available on
Fitchs website at www.fitchratings.com. Additional criteria used in Fitchs analysis are listed on
page 1.
Model
The credit analysis followed a two-step process. First, the agency analyzed the portfolios default
and recovery probabilities using Fitchs PCM V2.3.2, in accordance with its corporate CDO criteria.
Avery Point II CLO, Limited/Corp.
(Issuer)
Note Proceeds
(for Loan Purchase)
Sale of Loans to IssuerPrincipal and
Interest
Note Proceeds
Loan Portfolio
$500 Million
High-Yield Loans
Sankaty Advisors, LLC
(Asset Manager)
The Bank of New York Mellon
(Trustee and Collateral Administrator)
Class B1 & B2
Notes
Class C
Notes
Class D
Notes
Class E
Notes
Class F
Notes
Transaction Structure
Class A
Notes
Subordinated
Notes
Structured Finance
Avery Point II CLO, Limited/Corp. 13
June 7, 2013
Second, Fitch analyzed the structure using its proprietary cash flow model, as customized for the
transactions specific structural features, in accordance with the cash flow analysis criteria.
Data Adequacy
Fitch utilized publicly available information to provide credit opinions on 11.2% of the underlying
public companies. In addition, Fitch publicly rates 12.1% of the portfolio. The information utilized in
Fitchs analysis is as of June 7, 2013.
Sources of information used to assess these ratings were the transaction documents provided by
the arranger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and the public domain.
Fitchs credit opinions and recovery ratings are produced by the corporate rating group and
reviewed by a rating committee. The rating committee has a similar profile to those for Fitchs explicit
ratings in terms of the number and seniority of voting members in the quorum. Fitch will review and
update its credit opinions and recovery ratings through this committee process at least annually, with
informal reviews on a quarterly basis and ongoing monitoring of information in the market.
Performance Analytics
Fitch will monitor the transaction regularly and as warranted by events with a review. Events
that may trigger a review include the following:
Asset defaults, paying particular attention to restructurings and recoveries.
Portfolio migration, including assets being downgraded to CCC, or portions of the portfolio being placed on Rating Watch Negative or Rating Outlook Negative.
OC or IC test breach.
Breach of concentration limitations or portfolio quality covenants. Future changes to Fitchs rating criteria.
Surveillance analysis is conducted on the basis of the then-current portfolio. Fitchs goal is to
ensure that the assigned ratings remain an appropriate reflection of the issued notes credit risk.
Details of the transactions performance are available to subscribers on Fitchs Web site at
www.fitchratings.com.
Structured Finance
Avery Point II CLO, Limited/Corp. 14
June 7, 2013
Appendix A: Transaction Overview
Avery Point II CLO, Limited/Corp. U.S./Structured Credit Capital Structure
Class Expected Ratings
Expected Rating Outlook Size (%) Size ($ Mil.) CE (%)
a Interest Rate (%) PMT Frequency Final Maturity
A AAAsf Stable 58.8 304.00 39.2 3mL + 1.11 Quarterly July 2025 B-1 NR N.A. 8.9 46.00 25.0 3mL + 1.55 Quarterly July 2025 B-2 NR N.A. 4.8 25.00 25.0 3.21 Quarterly July 2025 C NR N.A. 7.0 36.00 17.8 3mL + 2.75 Quarterly July 2025 D NR N.A. 5.0 26.00 12.6 3mL + 3.45 Quarterly July 2025 E NR N.A. 4.6 24.00 7.8 3mL + 4.25 Quarterly July 2025 F NR N.A. 2.6 13.5 5.1 3mL + 5.10 Quarterly July 2025
Subordinated Notes NR N.A. 8.2 42.25 Residual July 2025 Total 100.0 516.75
aBased on the target par amount of $500.00 million. NR Not rated. N.A. Not applicable.
Scheduled Revolving Period Four years Swaps None Scheduled Non-Call Period Two years Payment Frequency Quarterly Key Information
Details: Parties:
Closing Date June 2013 (expected) Arranger Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Country of Assets and Type U.S. leveraged loans Trustee and Collateral Administrator The Bank of New York Mellon Trust
Company Country of SPV Cayman Islands Portfolio Manager Sankaty Advisors, LLC Primary Analyst Erika Tsang, CFA Issuer Avery Point II CLO, Limited/Corp. +1 212 908-0817 Secondary Analyst Robert Rhein +1 312 606-2314 Leveraged Finance Analyst Darin Schmalz
+1 312 606-2324
Key Rating Drivers
Sufficient Credit Enhancement: Credit enhancement (CE) of 39.2% for class A notes,
in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an AAAsf stress scenario. The level of CE for class A notes is above the average CE of recent CLOs. B/B Asset Quality: The average credit quality of the indicative portfolio is B/B, which is comparable to recent CLOs. Issuers rated in the B category denote a highly speculative credit quality; however, class A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are robust against default rates of up to 67.8%.
Strong Recovery Expectations: The indicative portfolio consists of 95.8% senior secured loans, approximately 91.5% of which have strong recovery prospects or a Fitch Ratings-assigned recovery rating of RR2 or higher. This is in line with the seniority profile of recent vintage CLOs.
Additional Rating Drivers
Consistent Portfolio Parameters: The portfolio will be actively managed and bound by concentration limitations and collateral quality tests addressing various loan and structural characteristics. The concentration limitations and collateral quality test levels presented to date are within the range of limits set in the majority of recent CLOs. Fitch addressed the impact of the most prominent risk-presenting concentration allowances and targeted test levels in its analysis.
Avery Point II CLO, Limited/Corp.
(Issuer)
Note Proceeds
(for Loan Purchase)
Sale of Loans to IssuerPrincipal and
Interest
Note Proceeds
Loan Portfolio
$500 Million
High-Yield Loans
Sankaty Advisors, LLC
(Asset Manager)
The Bank of New York Mellon
(Trustee and Collateral Administrator)
Class B1 & B2
Notes
Class C
Notes
Class D
Notes
Class E
Notes
Class F
Notes
Transaction Structure
Class A
Notes
Subordinated
Notes
Structured Finance
Avery Point II CLO, Limited/Corp. 15
June 7, 2013
Appendix B: Fitchs Asset Manager Profile Report The Fitch View
Sankaty Advisors, LLC
Strengths
Experienced CLO manager that has managed 19 CLOs since 1999.
Loan portfolios outperformed LSTA in terms of annual gross return and annual default rates from 19992011.
Extensive experience level of key personnel within the leveraged loan asset class.
Robust investment, oversight, and credit-monitoring policies.
Challenges
To maintain CLO performance in more challenging markets, mitigated by the long, good performance track record demonstrated to date.
To maintain stability among key staff and preserve the talent pool amidst increasing industry
competition.
Company and Staffing
Total committed assets under management totaled approximately $18.6 billion as of Jan. 1, 2013. Invests across the credit universe, including performing and distressed bank loans and
high-yield bonds; debtor-in-possession loans; mezzanine/private placements; structured
products; credit-based equities; credit default swaps; and special situations investments.
Sankaty typically retains large percentages of equity classes in the CLOs it manages.
Sankaty employs a total staff of 180, including 87 investment professionals and has offices in Boston, Chicago, New York, and London.
Senior managers across the firm average 20-plus years of experience. Turnover has remained
low, and the firm has added 16 investment professionals over the past five years.
Investment staff has extensive experience in structuring and negotiating complex transactions involving high-yield assets.
A dedicated distressed/workout team, including the in-house counsel, manages the workout process for distressed investments.
Sankaty has a sound oversight function; all potential issues found by its compliance
department are followed up with senior management as necessary, and all internal audit
reports are reviewed by Bains senior management, the chief credit officer, and a compliance
oversight committee.
Sankaty is a registered investment adviser with the SEC.
Credit Selection
Sankaty utilizes a classic buy-and-hold strategy based on fundamental credit analysis and disciplined portfolio monitoring.
The investment strategy relies on an approach of fundamental business, industry, and
competitive analysis.
All approvals are made by a committee that includes five Sankaty managing directors and the industry analysts who follow the credit.
Portfolio and Risk Management
Sankatys research function is overseen by a 38-member industry research team; each industry team covers approximately 2045 credits.
Structured Finance
Avery Point II CLO, Limited/Corp. 16
June 7, 2013
There is a thorough investment monitoring process, under which each analytical team provides
a monthly sheet with an update of every credit. On a quarterly basis, a more detailed update is
provided by the analytical team on each name covered.
Investment Administration
Dedicated CLO administration resources provide independent trustee reconciliation and indenture compliance monitoring. Proprietary models and Intex software are used to model
CLO structures and cash flow waterfalls.
There is a daily reconciliation of cash and weekly reconciliation of securities with custodians and administrators. An automated system is in place that reconciles daily all activities and cash
balances against Sankatys internal Wall Street office database.
Investor reporting is available via password-protected Web access, whereby investors can access quarterly commentary, account-specific information, capital account balances, and fund
performance. Sankaty also has a dedicated, 13-person investor relations team, headed by the
chief operating officer, to handle all investor requests.
While third-party providers are used for banking/cash management, custody, prime brokerage,
and certain valuations, and all back-office, finance, and operational activities are conducted in-
house, no core functions are outsourced.
Scalability of processes is demonstrated through the successful integration of CLOs issued
since 1999.
Technology
Robust CDO-specific tools/systems enable Sankaty to analyze trades on a pro forma basis, manage CDO compliance, provide enhanced management/investor reporting, and shadow the
CDO trustees accounting.
The company has devoted significant resources over the past several years to develop robust business systems and IT infrastructure that support the overall structured product platform.
A comprehensive disaster recovery plan is in place and regularly tested for robustness. The last test of the system was completed in May 2011 and resulted in no material findings.
Structured Finance
Avery Point II CLO, Limited/Corp. 17
June 7, 2013
Appendix C: Priority of Payments
Payment Waterfalls
Interest Waterfall Principal Waterfall
1. Taxes, governmental fees, and administrative expenses 1. Taxes, governmental fees and administrative expenses
2. Base management fee 2. Base management fee
3. Liquidity reserve amount and hedge counterparties 3. Liquidity reserve amount and hedge counterparties
4. Class A interest 4. Class A interest
5. Class B interest 5. Class B interest
6. Class A/B coverage tests 6. Class A/B coverage tests
7. Class C interest 7. Class C coverage tests
8. Class C deferred interest 8. Class D coverage tests
9. Class C coverage tests 9. Class E coverage test
10. Class D interest 10. If a tax event, special redemption or optional redemption, redemption of the notes in accordance with the note payment sequence, or to the subordinated notes in connection with an optional redemption if the secured notes are PIF
11. Class D deferred interest 11. During the reinvestment period, class C interest, then class C deferred interest; provided the class C coverage tests will be satisfied pro forma
12. Class D coverage tests 12. During the reinvestment period, class D interest, then class D deferred interest; provided the class D coverage tests will be satisfied pro forma
13. Class E interest 13. During the reinvestment period, class E interest, then class E deferred interest; provided the class E coverage test will be satisfied pro forma
14. Class E deferred interest 14. During the reinvestment period, class F interest, then class F deferred interest; provided the reinvestment test will be satisfied pro forma
15. Class E OC test 15. During the reinvestment period, to reinvest in additional collateral; after the reinvestment period, to purchase additional collateral using principal proceeds from credit risk obligations, credit improves obligations or unscheduled principal payments
16. Class F interest 16. After the reinvestment period, to redeem notes in accordance with the note payment sequence
17. Class F deferred interest 17. After the reinvestment period, accrued and unpaid subordinated management fees; any interest on deferred management fees; any deferred management fees, at manager's discretion
18. During the reinvestment period, if the reinvestment test is not satisfied, the lesser of 50% remaining interest proceeds or amount to cure the test applied as principal proceeds; after the reinvestment period, if the reinvestment test is not satisfied, the lesser of 50% remaining interest proceeds or amount to cure the test to redeem notes in accordance with the note payment sequence
18. After the reinvestment period, accrued and unpaid administrative expenses
19. Accrued and unpaid subordinated management fees 19. After the reinvestment period, unpaid hedge counterparty payments
20. First, any interest on management fees deferred by the portfolio manager that remains accrued and unpaid from prior distribution dates; second, any deferred management fees, at manager's discretion
20. After the reinvestment period, subordinated notes up to the incentive interest threshold (12% IRR)
21. Accrued and unpaid administrative expenses or hedge counterparty payments 21. After the reinvestment period, remaining proceeds to be paid: 20% to portfolio manager (as incentive interest) and 80% to subordinated notes
22. Subordinated notes up to the incentive interest threshold (12% IRR)
23. Remaining proceeds to be paid: 20% to portfolio manager (as incentive interest) and 80% to subordinated notes
Structured Finance
Avery Point II CLO, Limited/Corp. 18
June 7, 2013
Appendix D: Collateral Quality Tests, Concentration Limitations, and Coverage Tests
Collateral Quality Tests Description Limit
Minimum Weighted Average Coupon (%) 7.25
Minimum Weighted Average Spread (%) 3.9
Maximum Weighted Average Life (Years) 8.0 (Declining)
S&P Minimum Weighted Average Recovery Rate Test (%) Determined by Sankaty and S&P
S&P CDO Monitor Test Determined by Sankaty and S&P
Notable Concentration Limitations
Description Limit
Maximum % of Each of the Top Five Obligors 2.5
Outside of the Five Obligors, Maximum % of Next Obligor 2
Maximum % of Securities Rated CCC+ or Below by S&P 5
Minimum % of Senior Secured Loans 90
Maximum % of Second Lien Loans, Senior Unsecured Loans, Senior Secured Notes or Bonds 10
Maximum % of Letters of Credit 2.5
Maximum Top Industry % (One Industry) 15
Outside of Top Industry, Maximum Single Industry % (Up to Three Industries) 12
Outside of Top Four Industries, Maximum Single Industry % 10
Maximum % of Fixed-Rate Assets 10
Maximum % of Covenant-Lite Loans 40
Maximum % of Non-U.S. Issuers 20
Maximum % of Unfunded Commitments 10
Maximum % of Deferrable and Partial Deferrable Securities 0
Maximum % of Current-Pay Assets 2.5
Maximum % of Step-Down Obligations 5
Maximum % of Participations 20
Maximum % of DIP Loans 7.5
Maximum % of Bridge Loans 5
Maximum % of Synthetic Securities 0
Coverage Tests (%)
Test Trigger Definitiona
OC
Class A/B 124.33 ACPA divided by A and B
Class C 114.15 ACPA divided by A + B + C (including class C deferred interest)
Class D 108.42 ACPA divided by A + B + C + D (including class C and D deferred interest)
Class E 103.96 ACPA divided by A + B + C + D + E (including class C, D and E deferred interest)
IC
Class A/B 120.0 Interest proceeds and expected interest income minus senior expenses, divided by interest due to class A and class B notes
Class C 110.0 Interest proceeds and expected interest income minus senior expenses, divided by interest due to class A, class B, and class C notes (excluding class C deferred interest)
Class D 105.0 Interest proceeds and expected interest income minus senior expenses, divided by interest due to class A, class B, class C and class D notes (excluding class C and D deferred interest)
Reinvestment OC
Class F During RP: 102.37
Post RP: 101.87 ACPA divided by A + B + C + D + E + F (including class C, D, and E + F deferred interest).
Par Value EOD
Par value EOD 102.5 ACPA (but with no haircuts for CCC+ or discounted obligations, defaulted obligations treated at MV) divided by the sum of the class A principal amount outstanding.
a A equals class A principal amount outstanding, B equals class B principal amount outstanding, C equals class C principal amount outstanding, D equals class D
principal amount outstanding, E equals class E principal amount outstanding. MV Market value. RR Recovery rate. RP Reinvestment Period. Adjusted Collateral Principal Amount (ACPA) equals aggregate principal balance of assets + principal cash. Assets are generally included at their par value, except for: Defaulted assets: if defaulted < 30 days, applicable RR; if defaulted > 30 days and < 3 years, lower of MV and RR. Discount obligations: are generally defined as either senior secured loan rated B or higher and purchased at a price below the lesser of 80% of par (or 85% of par for senior secured loans rated below B); or an obligation that is not a senior secured loan rated 'B' or higher and purchased at a price below the lesser of 75% of its principal balance (or 80% of its principal balance for nonsenior secured loans rated below 'B'); discount obligations are included at purchase price until (i) MV is above 90% for 30 consecutive days for senior secured loans, after which the asset will be included at par; or (ii) MV is above 85% for 30 consecutive days for any collateral obligation that is not a senior secured loan. Excess of 7.5% of aggregate principal balance of assets rated CCC+ and below: included at MV. Source: Transaction documents.
Structured Finance
Avery Point II CLO, Limited/Corp. 19
June 7, 2013
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 WEB SITE AT 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.
Copyright 2013 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitchs factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third-party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitchs ratings should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed.
The information in this report is provided as is without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.