Fitch Ratings has affirmed two classes of notes issued by Black Diamond International Funding Ltd./Inc. (BDIF) and by Black Diamond USA Funding Corp. (Black Diamond USA) as follows:
BDIF
--$13,796,070 senior variable funding notes at 'AAAsf'; Outlook Stable.
Black Diamond USA
--$0 CP notes at 'F1sf'.
The affirmation of the senior variable funding notes (SVFN) is due to the substantial increase of the SVFN credit enhancement resulting from the significant deleveraging of the capital structure. Since the last review in July 2011, the SVFN have been paid down by $91 million, $13.9 million of which were interest proceeds being diverted to amortize the senior notes. The Stable Outlook on the SVFN reflects Fitch's expectation of their stable rating performance over the next one to two years.
As of the July 2012 trustee report, the average quality of the performing portfolio has remained stable at 'B-/CCC+' and there have been no new defaults since the last review. Due to the significant amortization of the portfolio, obligor concentration has increased, with the three largest obligors representing 39.3% of the performing portfolio, compared to 28.3% at last review. The remainder of the performing portfolio is comprised of debt issued by 21 obligors. The amount of issuers with no public or private ratings, for which Fitch assumed a rating of 'CCC' in its portfolio analysis, has also increased to 47.4% from 22.5%.
Fitch conducted cash flow modeling analysis in order to determine breakeven default levels for the SVFN. These breakeven default levels were then compared to the results of Fitch's PCM model, and are consistent with an 'AAAsf' rating level. Additionally, Fitch analyzed the transaction's sensitivity to obligor concentration by running a sensitivity scenario that assumed the top five riskiest obligors were exposed to increased correlation assumptions and lower recovery prospects in the PCM model. The notes display the ability to withstand an 'AAAsf' rating stress in the sensitivity scenario as well. Approximately 67.8% of the performing portfolio balance is scheduled to mature after the stated legal final maturity of the notes in January 2016, which may expose them to market value risk. In Fitch's cash flow model, these assets were treated as if they were sold at the final maturity date of the SVFN at a price consistent with their expected recoveries. Fitch expects available proceeds received prior to maturity to be sufficient to pay the class SVFN in full at or prior to their scheduled maturity.
At inception, Black Diamond USA entered into a purchase agreement with BDIF, whereby the SVFN issued by BDIF would be purchased by Black Diamond USA. Black Diamond USA purchases the SVFN with the proceeds from the sale of CP or from drawing upon a liquidity facility. The liquidity facility is provided on a pro rata basis by three banks and has a maximum commitment amount of $500 million. The CP notes have not been issued since October 2007 and the current outstanding balance of the CP notes is zero. Since the structure allows Black Diamond USA to reissue CP in the future, Fitch affirms its 'F1sf' rating for the CP program. The rating on the CP notes is directly related to the rating of the SVFN as well as the ratings of Black Diamond USA's liquidity providers. The liquidity providers meet Fitch's current counterparty criteria.
BDIF is a revolving collateralized loan obligation (CLO) managed by Black Diamond Capital Management, L.L.C., which closed Sept. 30, 1999. Currently, the BDIF performing portfolio is comprised of primarily senior secured loans (77.0%), bonds (8.6%), ABS (5.4%), CLOs (4.6%) and second lien loans (4.4%). BDIF has two classes of senior notes, with different reinvestment and maturity dates, that are paid pro rata. The SVFN reinvestment period ended in January 2011 and has a stated maturity in January 2016.
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 information used to assess these ratings was sourced from the asset manager, periodic servicer reports, note valuation reports, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'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).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923
Global Rating Criteria for Corporate CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641789
Global Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=650717
Criteria for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=673560
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