Fitch Rates Emporia Preferred Funding II, Ltd.
-- $91,000,000 Class A-1 first priority senior notes 'AAA';
-- $30,000,000 Class A-2 first priority senior revolving notes 'AAA';
-- $120,000,000 Class A-3 first priority senior delayed draw notes 'AAA';
-- $30,000,000 Class B second priority senior notes 'AA';
-- $22,000,000 Class C third priority subordinated deferrable notes 'A';
-- $22,000,000 Class D fourth priority subordinated deferrable notes 'BBB';
-- $14,500,000 Class E fifth priority subordinated deferrable notes 'BB'.
The ratings are based upon the credit quality of the underlying assets, the credit enhancement provided to the capital structure through subordination and excess spread, and the strength of Emporia Capital Management LLC., as asset manager to the portfolio assets.
The ratings of the classes A-1 through A-3, and B 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 classes C through E notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balances of notes C, D, and E principal by the legal final maturity date.
The notes are supported by the cash flows of an asset portfolio consisting of middle market senior secured loans, and broadly syndicated senior secured and second lien loans. The majority of the borrowers, as modeled by Fitch, operate in the business services, retail (general), chemicals, gaming/leisure & entertainment and consumer product industries.
The expected portfolio will consist of 85% first lien loans, with the remaining 15% invested in second lien loans. The portfolio, is approximately 50% ramped at close, has a maximum Fitch weighted average rating factor of 37.00 ('B-/CCC+'). The expected pool will have 50 obligors with no single obligor representing more than 2% of the total portfolio value.
During the six year reinvestment period, principal collections may be used to reinvest in additional collateral. The reinvestment collateral must meet minimum standards outlined in the portfolio criteria. Within the reinvestment period the collateral manager may elect to pay down notes in order of seniority via a special amortization if the collateral manager cannot locate additional collateral that meets the reinvestment criteria within 30 days. By electing a special amortization the collateral manager may elect to designate all or a portion of principal collections for payment of the notes in order of seniority.
During or after the reinvestment period the asset manager may make discretionary sales up to 20% of the aggregate principal amount per annum, subject to certain rating criteria. The asset manager must reinvest the proceeds from the sale within 30 days during the reinvestment period. The proceeds may be used to purchase substitute collateral with a principal balance equal to the amount that was sold assuming investment criteria are satisfied.
The portfolio criteria will include the following tests, the maximum weighted average rating factor, maximum weighted average life, minimum weighted average spread and coupon tests. This transaction also features an interest diversion test that diverts interest to add collateral during the reinvestment period or thereafter to pay down notes in reverse sequential order.
As part of the rating process for this transaction, Fitch stressed the underlying asset portfolio with a variety of default and interest rate scenarios, designed to simulate varying economic conditions. In addition, to address the revolving feature of this transaction Fitch stressed the portfolio to certain worst case parameters including WARF, weighted average spread, weighted average coupon and weighted average life. For further details on the stress tests Fitch employed while rating Emporia Preferred Funding II, Ltd., see the presale report, 'Emporia Preferred Funding II, Ltd. (US CDO),' dated May 28, 2006 and available on the Fitch Ratings web site www.fitchratings.com.
For more information on the Fitch vector model, see 'Global Rating Criteria for Collateralized Debt Obligations,' dated September 13, 2004 and also available on the Fitch Ratings web site www.fitchratings.com.
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|Date:||Jun 21, 2006|
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