Fitch Ratings downgrades two, upgrades one, and removes from Rating Watch Negative six classes of notes issued by Fall Creek CLO, Ltd., (Fall Creek). The following rating actions are effective immediately:
--$157,500,000 class A-1 revolving notes downgraded to 'BB' from 'BBB';
--$312,500,000 class A-2 notes downgraded to 'BB' from 'BBB';
--$29,167,000 class B notes upgraded to 'B' from 'CCC';
--$47,000,000 class C notes remain at 'CCC';
--$6,857,000 class D-1 notes remain at 'CCC';
--$5,167,000 class D-2 notes remain at 'CCC'.
The rating actions reflect the application of methodology outlined under Fitch's updated Market Value Structures (MVS) criteria, published April 18, 2008. In addition, the ratings consider the sustained market value decline in the secondary leveraged loan market that has increased the vulnerability of these classes to a deteriorating credit environment. Fitch continues to be concerned about pricing volatility in leveraged loan secondary markets.
The downgrade of class A-1 and A-2 notes to 'BB' reflects its distance-to-trigger (DTT) metric relative to the advance rate ranges published in Fitch's updated MVS criteria. The DTT is now under 8% according to Fitch's most recent calculation, with the portfolio categorized into 66% Category 2 assets, 29% Category 3 assets, and 5% Category 4 assets. Although the DTT implies a 'B' rating, the class A notes benefit from an additional cushion above the transaction's liquidation trigger, the additional subordination provided by the other classes, and the potential for further D-1 note issuance.
The class B notes are upgraded to 'B' based on the DTT metric along with the benefit provided by the potential D-1 note issuance.
The class C, D-1 and D-2 notes remain at 'CCC' which reflects their negative net asset value (NAV) coverage levels that have been calculated by Fitch. Although additional D-1 note issuance would help prevent a liquidation of the transaction, the issuance would only occur when the class C, D-1, and D-2 notes had significant negative NAV coverage levels.
Fall Creek is a cash flow collateralized loan obligation (CLO) with a market value termination trigger. The transaction closed on Sept. 8, 2005 and is managed by 40|86 Advisors, Inc.
The ratings of the class A-1, A-2, B, and C notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class D-1 and D-2 notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date.
Additional transaction information and historical data are available on the Fitch Ratings web site at www.fitchratings.com.
--'Fitch Update: Application of Revised Market Value Structure Criteria to TRR CLOs' (May 15, 2008)
--'Rating Market Value Structures' (April 30, 2008)
--'Fitch Downgrades 24 Classes from 9 TRR CLOs on Secondary Loan Price Declines (February 20, 2008)
--'Fitch Downgrades 28 Classes from 10 TRR CLOs (February 12, 2008)
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.