Various Rating Actions Taken On OFSI Fund VII Ltd.

  • We raised our ratings on three classes from OFSI Fund VII Ltd. and removed them from CreditWatch positive.
  • We also affirmed our ratings on three classes and withdrew our rating on one class from the transaction.
  • The upgrades reflect improved overcollateralization ratios due to senior note paydowns since our October 2017 rating actions.
  • The affirmed ratings reflect our belief that the credit support available is commensurate with the current rating levels. The withdrawal followed full repayment of the notes.
CENTENNIAL (S&P Global Ratings) Feb. 22, 2019--S&P Global Ratings today raised 
its ratings on three classes from OFSI Fund VII Ltd. and removed them from 
CreditWatch, where we had placed them with positive implications on Dec. 20, 
2018. At the same time, we affirmed our ratings on three classes and withdrew 
our rating on one class from the transaction (see list.)

Today's rating actions follow our review of the transaction's performance 
using data from the Jan. 8, 2019, trustee report.

The upgrades reflect the transaction's $61.72 million collective paydowns to 
the class A-R notes since our October 2017 rating actions (see "Ratings 
Assigned To Five Classes From OFSI Fund VII Ltd. In Connection With Refinancing
," published Oct. 3, 2017). These paydowns resulted in improved reported 
overcollateralization (O/C) ratios since the Aug. 8, 2017, trustee report, 
which we used for our previous rating actions:
  • The class A/B O/C ratio improved to 140.79% from 134.18%,
  • The class C O/C ratio improved to 125.48% from 122.35%,
  • The class D O/C ratio improved to 116.42% from 115.09%,
  • The class E O/C ratio improved to 109.88% from 109.72%, and
  • The interest diversion test declined to 107.33% from 107.59%.
The collateral portfolio's credit quality has deteriorated since our October 
2017 rating actions. Collateral obligations with ratings in the 'CCC' category 
have increased, with $21.05 million reported as of the January 2019 trustee 
report, compared with $18.33 million reported as of the August 2017 trustee 
report. Defaulted collateral also increased, with $2.68 million reported as of 
the January 2019 trustee report, compared to zero reported as of the August 
2017 trustee report. In addition, the weighted average spread has declined to 
3.45% from 3.98%.

The upgrades also reflect the improved credit support at the prior rating 
levels due to senior note paydowns, and the affirmations reflect our view that 
the credit support available is commensurate with the current rating levels.

The withdrawal followed the full repayment of the class X notes.

On a standalone basis, the results of the cash flow analysis indicated higher 
ratings on the class C-R, D-R, and E-R notes. However, given the portfolio's 
heightened exposure to 'CCC' rated and defaulted collateral obligations, 
decline in weighted average spread, par loss, and current 
overcollateralization levels, we limited the upgrade on the class C-R, D-R, 
and E-R notes to offset future potential credit migration in the underlying 
collateral.

Although our cash flow results indicated a lower rating for the class F notes, 
we considered the tranches stable overcollateralization ratio and benefits 
received due to seasoning in the underlying collateral. We do not believe 
these tranches are currently vulnerable to nonpayment or dependent on 
favorable market conditions to be fully repaid. However, additional 
deterioration in credit quality or weighted average spread could lead to 
potential negative rating actions on the notes in the future.

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 economic 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.

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