Two Ratings Lowered from Trinitas CLO II Ltd. and Six Ratings Affirmed


  • We lowered our ratings on the class E and F notes from Trinitas CLO II Ltd. and removed them from CreditWatch negative.
  • At the same time, we affirmed our ratings on the class A-1R, A-2R, B-1R, B-2R, C, and D notes from the same transaction.
  • The lowered ratings reflect the decline in credit support available to the junior notes since our July 2018 rating action.
 
CENTENNIAL (S&P Global Ratings) March 13, 2019--S&P Global Ratings today 
lowered its ratings on the class E and F notes from Trinitas CLO II Ltd. We 
also removed them from CreditWatch with negative implications, where we placed 
them on Dec. 20, 2018. At the same time, we affirmed our ratings on the class 
A-1R, A-2R, B-1R, B-2R, C, and D notes (see list).

Today's rating actions follow our review of the transaction's performance 
using data from the trustee report dated Jan. 31, 2019.

The lowered ratings reflect a high concentration of 'CCC' rated assets, an 
increase in defaults, and par loss leading to a decrease in credit support 
available to the class E and F notes. 

The exposure of 'CCC' rated assets held in the portfolio as of the January 
2019 trustee report is $39.85 million, which is approximately 11.8% of the 
collateral principal amount. The amount of defaulted assets increased to $2.71 
million as of the January 2019 trustee report, from zero as of the May 2018 
trustee report that we used in our last rating action review.

Furthermore, according to the January 2019 trustee report that we used for 
this review, the overcollateralization (O/C) ratios for each class A/B and C 
notes modestly improved due to paydowns. However, the class D and E O/C ratios 
displayed deterioration due to some par loss and larger haircuts following a 
high concentration of 'CCC' rated and defaulted collateral:

  • The class A/B O/C ratio increased to 126.40% from 123.70%;
  • The class C O/C ratio increased to 116.65% from 115.56%;
  • The class D O/C ratio decreased to 108.93% from 108.97%; and
  • The class E O/C ratio decreased to 103.03% from 103.84%.
The results of our base cash flow analysis indicated a lower rating on the 
class E and F notes. However, after considering  the current O/C levels and 
the results of our additional sensitivity runs, in which we used shortened 
default patterns that factored the declining weighted average life of the 
portfolio, we limited our downgrade on the class E notes to 'B (sf)'. 
Additionally, for the class F notes, we considered our criteria for assigning 
'CCC' category ratings, including its vulnerability to nonpayment. We note 
that this class does not have a coverage test but it is currently covered by 
performing collateral. However, any increase in defaults or par losses could 
lead to negative rating actions in the future. 

On a standalone basis, the results of the cash flow analysis indicated a 
higher rating on the class B-1R, B-2R, C, and D notes. However, we affirmed 
these ratings based, in part, on the transaction's high concentration of 'CCC' 
rated collateral obligations, increased exposure to defaults, modest 
deterioration in the class D and E O/C ratios, par loss, and additional 
sensitivity runs that considered the presence of assets currently trading at 
low market values.

The affirmed ratings on class A-1R and A-2R reflect adequate credit support at 
the current rating levels.

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 or ultimate principal or both 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 will take rating actions as we deem necessary.

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