OFSI Fund V Ltd. Ratings Raised On Three Classes, Affirmed On Four

OVERVIEW
  • We raised our ratings on OFSI Fund V Ltd.'s class A-3F-R, A-3L-R, and B-1L-R notes.
  • We affirmed our ratings on the class A-2F-R, A-2L-R, B-2L, and B-3L notes from the same transaction.
  • The upgrades reflect improved overcollateralization ratios because of senior note paydowns since our April 2018 rating actions.
  • The affirmed ratings reflect our belief that the credit support available is commensurate with the current rating levels.
CENTENNIAL (S&P Global Ratings) Jan. 10, 2019--S&P Global Ratings today raised 
its ratings on the class A-3F-R, A-3L-R, and B-1L-R notes from OFSI Fund V Ltd.
 We also removed these ratings from CreditWatch, where we had placed them with 
positive implications on Oct. 26, 2018 (see "Ratings On 38 Classes From 12 
CLOs Placed On CreditWatch Positive; One Class Placed On CreditWatch Negative")
. At the same time, we affirmed our ratings on the A-2F-R, A-2L-R, B-2L, and 
B-3L notes from the same transaction. (See list.)

Today's rating actions follow our review of the transaction's performance 
using data from the Dec. 7, 2018, trustee report.

The upgrades reflect the transaction's $104.26 million in collective paydowns 
to the class A-1LA, A-1LB-R, A-2F-R, and A-2L-R notes since our April 2018 
rating actions. These paydowns resulted in improved reported 
overcollateralization (O/C) ratios since the March 9, 2018, trustee report, 
which we used for our previous rating actions:
  • The senior class A O/C ratio improved to 604.47% from 169.52%.
  • The class A O/C ratio improved to 230.44% from 139.39%.
  • The class B-1L O/C ratio improved to 158.69% from 123.37%.
  • The class B-2L O/C ratio improved to 124.11% from 111.86%.
  • The class B-3L O/C ratio improved to 114.56% from 108.01%.
The collateral portfolio's credit quality has remained fairly stable since our 
last rating actions. Collateral obligations with ratings in the 'CCC' category 
have decreased, with $9.38 million reported as of the December 2018 trustee 
report, compared with $15.28 million reported as of the March 2018 trustee 
report. However, 'CCC' exposure remains elevated at more than 11% of the 
aggregate collateral balance.

As a result of amortization in the underlying collateral, the portfolio has 
become more concentrated, comprising 57 assets from 42 obligors, down from 105 
assets from 81 obligors. In addition, the weighted average spread has declined 
slightly, which affected the interest coverage (I/C) tests of the junior 
tranches.  Both the B-2L and B-3L notes I/C tests are currently failing, 
although they have relatively strong O/C ratios.

The upgrades reflect the improved credit support at the prior rating levels; 
the affirmations reflect our view that the credit support available is 
commensurate with the current rating levels.

On a standalone basis, the results of the cash flow analysis indicated higher 
ratings on the class B-1L-R, B-2L, and B-3L notes. Though the B-2L and B-3L 
I/C ratios are failing, our cash flow models take into account that these 
tranches can defer their interest. However, given the portfolio's heightened 
exposure to 'CCC' rated collateral obligations, assets trading at distressed 
prices, obligor concentration, and decline in weighted average spread, we 
limited the upgrade to the class B-1L-R notes and affirmed our ratings on the 
class B-2L and B-3L notes to offset future potential credit migration in the 
underlying collateral and increased concentration in the portfolio as the 
assets mature or prepay.

Our review of this transaction included a cash flow analysis, based on the 
portfolio and transaction as reflected in the aforementioned trustee report, 
to estimate future performance. In line with our criteria, our cash flow 
scenarios applied forward-looking assumptions on the expected timing and 
pattern of defaults, and recoveries upon default, under various interest rate 
and macroeconomic scenarios. In addition, our analysis considered the 
transaction's ability to pay timely interest and/or ultimate principal to each 
of the rated tranches. The results of the cash flow analysis--and other 
qualitative factors as applicable--demonstrated, in our view, that all of the 
rated outstanding classes have adequate credit enhancement available at the 
rating levels associated with these rating actions.

We will continue to review whether, in our view, the ratings assigned to the 
notes remain consistent with the credit enhancement available to support them, 
and we  will take further rating actions as we deem necessary.