Palmer Square Loan Funding Ltd./Palmer Square Loan Funding LLC

Transcription

1 Presale: Palmer Square Loan Funding Ltd./Palmer Square Loan Funding LLC Primary Credit Analyst: Christopher R Davis, New York (1) ; christopher.davis@standardandpoors.com Secondary Contact: Kyle S Rose, Charlottesville (1) ; kyle.rose@standardandpoors.com Lead Analytical Manager, U.S. Commercial Credit: Winston W Chang, New York (1) ; winston.chang@standardandpoors.com Table Of Contents $ Million Floating-Rate Notes Rationale Rating Considerations Portfolio Analysis Top Obligor Holdings Industry Distribution Rating Distribution Maturity Distribution Spread Distribution Recovery Rate Distribution DECEMBER 18,

2 Table Of Contents (cont.) Sensitivity Analysis Structural Overview Overcollateralization And Interest Coverage Tests Events Of Default Payment Priorities Collateral Servicer Note Redemption Surveillance Related Criteria And Research Appendix: Other Defined Terms DECEMBER 18,

3 Presale: Palmer Square Loan Funding Ltd./Palmer Square Loan Funding LLC $ Million Floating-Rate Notes This presale report is based on information as of Dec. 18, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Standard & Poor's Ratings Services' portfolio analysis for this transaction is based on the portfolio collateral's original credit quality. This analysis reflects the application of our criteria to the purchased collateral provided to us by the collateral servicer. The results from Standard & Poor's CDO Evaluator, cash flow model, and sensitivity analysis consider the above-mentioned portfolio along with the additional assumptions or stresses that form the basis for the assigned preliminary rating. Preliminary Ratings As Of Dec. 18, 2015 Class Preliminary rating(i) Preliminary amount (mil. $) Interest rate (%) A-1 AAA (sf) Three-month LIBOR plus 1.30 A-2 AA (sf) Three-month LIBOR plus 1.90 B (deferrable) A (sf) Three-month LIBOR plus 2.65 C (deferrable) BBB (sf) 5.70 Three-month LIBOR plus 4.00 Subordinated notes Subordination (%) SDR (%) BDR (%) BDR cushion (%) NR N/A N/A N/A N/A N/A (i)the rating on each class of securities is preliminary and subject to change at any time. SDR--Scenario default rate. BDR--Break-even default rate. NR--Not rated. N/A--Not applicable. Supplemental Tests As Of Dec. 18, 2015 Class Preliminary rating Preliminary amount (mil. $) Largest industry default test loss amount (mil. $) Largest obligor default test loss amount (mil. $) A-1 AAA (sf) A-2 AA (sf) B (deferrable) A (sf) N/A C (deferrable) BBB (sf) 5.70 N/A 8.79 Subordinated notes NR--Not rated. N/A--Not applicable. NR N/A N/A DECEMBER 18,

4 Transaction Profile Expected closing date Jan. 21, Effective date Reinvestment period end date N/A. N/A. Non-call period end date Jan. 21, Stated maturity date Jan. 21, Total preliminary rated amount Total note balance (including the subordinated notes) Collateral Structure type Structure purpose Management $ million. $ million. A static pool consisting primarily of broadly syndicated senior secured loans. A cash flow collateralized loan obligation consisting of broadly syndicated loans. Arbitrage. An actively managed portfolio. Note payment frequency Quarterly, beginning July 21, Issuer Co-issuer Initial purchaser Trustee Hedge counterparty N/A--Not applicable. Palmer Square Loan Funding Ltd. (organized under the laws of the Cayman Islands). Palmer Square Loan Funding LLC (incorporated in Delaware). J.P. Morgan Securities LLC Citibank N.A. None. Collateral Servicer Collateral servicer Palmer Square Capital Management LLC. Senior/subordinated/asset performance servicing fee (bps) 10/10/2000 Number of Standard & Poor's-rated U.S. CLOs managed(i) Five. Standard & Poor's-rated U.S. CLO assets under management(i) $2.07 billion. (i)as of September BPS--Basis points. CLOs--Collateralized loan obligations. Portfolio Information As Of Dec. 18, 2015 Target assets (mil. $) Target par balance Par balance of identified collateral Par balance of collateral not yet identified 0.0 Eligible investments N/A Standard & Poor's rating (% of identified collateral) Standard & Poor's implied rating (% of identified collateral) 2.00 Obligors identified No. of obligors 131 Avg. obligor holding (%) 0.76 Largest-obligor holding (%) 1.25 Smallest-obligor holding (%) 0.25 Benchmark statistics Maximum weighted avg. maturity (approx. years) N/A Portfolio weighted avg. maturity (years) DECEMBER 18,

5 Portfolio Information As Of Dec. 18, 2015 (cont.) Minimum weighted avg. rating N/A Portfolio weighted avg. rating B+ Minimum weighted avg. spread (%) N/A Portfolio weighted avg. spread (%) 3.54 Portfolio weighted avg. spread, including LIBOR floors (%) 4.03 Standard & Poor's default measure (%) 5.09 N/A--Not applicable. Rationale The preliminary ratings we assigned to Palmer Square Loan Funding Ltd./Palmer Square Loan Funding LLC's floating-rate notes reflects our assessment of: The credit enhancement provided to the preliminary rated notes through the subordination of cash flows that are payable to the subordinated notes. The transaction's credit enhancement, which is sufficient to withstand the defaults applicable for the supplemental tests (not counting excess spread), and cash flow structure, which can withstand the default rate projected by Standard & Poor's CDO Evaluator model, as assessed by Standard & Poor's using the assumptions and methods outlined in its corporate collateralized debt obligation (CDO) criteria ("Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published Sept. 17, 2015). The transaction's legal structure, which is expected to be bankruptcy remote. The diversified collateral portfolio, which consists primarily of broadly-syndicated speculative-grade senior secured term loans. The collateral servicer's experienced management team. The transaction's ability to make timely interest and ultimate principal payments on the preliminary rated notes, which we assessed using our cash flow analysis and assumptions commensurate with the assigned preliminary ratings under various interest-rate scenarios, including LIBOR ranging from % %. The transaction's overcollateralization and interest coverage tests, a failure of which will lead to the diversion of interest and principal proceeds to reduce the balance of the rated notes outstanding. Rating Considerations In our analysis, we considered the following factors, among others: The transaction has a static portfolio with no reinvestment period and so there is no risk of changes to the portfolio due to trading activity. The servicer can't vote in favor of any waiver, modification, amendment, or variance that would extend a collateral obligation's maturity beyond the stated maturity date without the consent of a majority of each class. A CLO concentrated in long-dated assets could be exposed to market value risk at maturity because the servicer may have to sell long-dated assets for less than par to repay the CLO's subordinate rated notes when they mature (see "CDO Spotlight: The Relationship Between Long-Dated Assets And Market Value Risk In U.S. Cash Flow CLOs," published April 26, 2012). The transaction will be exposed to the market value of defaulted assets and assets rated 'CCC+' or lower. Any DECEMBER 18,

6 defaulted assets in the portfolio will be carried at the lower of their recovery rate or market value in the overcollateralization (O/C) tests' numerator, and any assets rated 'CCC+' or lower that exceed 7.5% of the portfolio's collateral value will be carried at the market value in the O/C tests' numerator. An event of default would be triggered if the class A-1 notes' O/C ratio falls below 102.5%. Therefore, the probability of an event of would increase if the portfolio's credit quality deteriorated significantly and market values decreased. According to the transaction documents, the event-of-default overcollateralization ratio is calculated without ratings-based haircuts. The trigger level and the vesting of voting rights for acceleration and liquidation are consistent with Standard & Poor's CDO criteria (see "The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs," published March 19, 2008). Portfolio Analysis As of Dec. 18, 2015, the issuer had identified % of the total assets expected to be acquired. Top Obligor Holdings The identified collateral pool presented to Standard & Poor's for its rating analysis consisted of obligors in the industries shown in table 1. Table 1 Top Obligor Holdings As Of Dec. 18, 2015 Notional amount (mil. $) Notional amount (%) Obligor reference Industry Security type 1 Utilities Senior secured covenant-lite 2 Diversified insurance 3 Diversified insurance 4 Property and casualty insurance 5 Property and casualty insurance 6 Home furnishings Standard & Poor s rating Standard & Poor s implied rating CreditWatch/Outlook Obligor Cumulative Obligor Cumulative B+ N/A Stable Second lien B N/A Stable Senior secured Senior secured covenant-lite Senior secured covenant-lite Senior secured covenant-lite 7 Health care Senior secured covenant-lite 8 Food products Senior secured B N/A Stable B N/A Stable B N/A Stable B N/A Watch negative B N/A Stable BB N/A Stable DECEMBER 18,

7 Table 1 Top Obligor Holdings As Of Dec. 18, 2015 (cont.) 9 Business equipment and services 10 Radio and television N/A--Not applicable. Senior secured Senior secured B N/A Negative B N/A Stable Industry Distribution The collateral pool presented to Standard & Poor's for its rating analysis consists of the industry concentrations shown in chart 1. Chart 1 Rating Distribution The collateral pool presented to Standard & Poor's for its rating analysis consists of the rating distributions shown in DECEMBER 18,

8 chart 2. Chart 2 Maturity Distribution The collateral pool presented to Standard & Poor's for its rating analysis consists of the maturity distributions shown in chart 3. DECEMBER 18,

9 Chart 3 Spread Distribution The identified collateral pool presented to Standard & Poor's for its rating analysis consists of the spread distribution shown in table 2 and chart 4. Table 2 Performing Identified Collateral Spread Distribution Actual weighted avg. spread (%) 3.54 Standard deviation of spread (%) 1.17 Minimum weighted avg. spread covenant (%) N/A Actual weighted avg. spread, including LIBOR floors (%) 4.03 Actual weighted avg. LIBOR floor (%) 0.94 N/A--Not applicable. DECEMBER 18,

10 Chart 4 Recovery Rate Distribution The identified collateral pool presented to Standard & Poor's for its rating analysis consists of the recovery rate distribution shown in table 3 and the recovery rating distribution shown in chart 5. Table 3 Performing Identified Collateral Recovery Rate Distribution (Based On % Of Par) Weighted avg. recovery rate (%) AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) B (sf) Standard deviation of recovery rate (%) AAA (sf) AA (sf) DECEMBER 18,

11 Table 3 Performing Identified Collateral Recovery Rate Distribution (Based On % Of Par) (cont.) A (sf) BBB (sf) BB (sf) B (sf) Minimum weighted avg. recovery rate covenant (%) AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) B (sf) Chart 5 N/A N/A DECEMBER 18,

12 Sensitivity Analysis Recovery rate sensitivity In addition to our base-case analysis, we generated additional scenarios in which we made positive and negative adjustments (10% each) to the proposed collateral pool's recovery rates relative to each tranche's weighted average recovery rate (see table 4). Table 4 Recovery Rate Sensitivity As Of Dec. 18, 2015 Class Preliminary rating Resulting rating transition BDR cushion at indicated rating (%) 10% recovery increase 10% recovery decrease Current (based on preliminary rating) 10% recovery increase 10% recovery decrease A-1 AAA (sf) AAA (sf) AA+ (sf) A-2 AA (sf) AA (sf) AA (sf) B (deferrable) C (deferrable) BDR--Break-even default rate. Correlation sensitivity A (sf) A (sf) A- (sf) BBB (sf) BBB (sf) BBB (sf) In addition to our base-case analysis, we generated additional scenarios by adjusting the intra- and inter-industry correlations to assess the proposed portfolio's sensitivity to different correlation assumptions, assuming the three correlation scenarios outlined in tables 5 and 6. Table 5 Correlation Scenario Within industry (%) Between industries (%) Below base case Base case equals preliminary rating Above base case Table 6 Correlation Sensitivity As Of Dec. 18, 2015 Resulting rating transition BDR cushion at indicated rating (%) Class Base case Below base case Above base case Base case Below base case Above base case A-1 AAA (sf) AAA (sf) AA+ (sf) A-2 AA (sf) AA (sf) AA (sf) B (deferrable) A (sf) A (sf) A (sf) C (deferrable) BBB (sf) BBB (sf) BBB (sf) BDR--Break-even default rate. Default biasing To assess whether the proposed portfolio has sufficient diversity, we biased defaults on the assets in the proposed DECEMBER 18,

13 collateral pool with the highest spread and lowest base-case recoveries (see table 7). Table 7 Default Biasing As Of Dec. 18, 2015 Class Preliminary rating Resulting rating transition A-1 AAA (sf) AA+ (sf) A-2 AA (sf) A+ (sf) B (deferrable) A (sf) BBB (sf) C (deferrable) BBB (sf) BB+ (sf) Structural Overview Palmer Square Loan Funding Ltd., the issuer, is an exempted company incorporated with limited liability under the laws of the Cayman Islands. Palmer Square Loan Funding LLC, the co-issuer, is a limited liability company organized under Delaware law. The issuer's and co-issuer's only purposes are to acquire the collateral portfolio, issue the notes, enter into the transaction documents, and engage in certain related transactions. Standard & Poor's expects the issuer's special-purpose entity provisions to be consistent with its bankruptcy-remoteness criteria. In rating this transaction, Standard & Poor's will review the legal matters that it believes are relevant to its analysis, as outlined in its criteria. Overcollateralization And Interest Coverage Tests In our view, the transaction benefits from certain structural features that require sequential mandatory redemption of the preliminary rated notes upon a breach of any overcollateralization or interest coverage test (see table 8). Table 8 Overcollateralization And Interest Coverage Tests Class Min. O/C required (%) Min. I/C required (%) A B C O/C- Overcollateralization test. I/C- Interest coverage test. Events Of Default Under certain conditions, the following events of default may result in the acceleration of payments to the preliminary rated notes and in the collateral's liquidation: A failure to pay interest, when due and payable, to any class A note; or if there are no class A notes outstanding, a failure to pay interest to the senior-most class (each within the related five-business-day grace period). A failure to pay principal, interest, deferred interest, or the redemption price on any rated note at its stated maturity or on a redemption date. DECEMBER 18,

14 A failure to disburse amounts exceeding $1,000 from the payment account according to the payment priority (subject to a five-business-day grace period). The issuer, co-issuer, or collateral pool is required to register as an investment company under the Investment Company Act of 1940 (subject to a 45-day grace period). Certain covenants under the legal documents are breached and are not cured within the 30-day cure period. The class A-1 event-of-default O/C ratio falls below 102.5%. The event-of-default O/C ratio is calculated without ratings-based haircuts but includes defaulted assets carried at the lower of their recovery rate or market value. The trigger level and vesting of voting rights for acceleration and liquidation are consistent with Standard & Poor's CDO criteria (see "The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs," published March 19, 2008). The issuer's or co-issuer's voluntary or involuntary bankruptcy. Payment Priorities Under the transaction documents, the collateral's interest and principal collections are payable according to separate payment priorities. During and after the reinvestment period On each payment date during and after the reinvestment period, unless an acceleration following an event of default, interest collections will be distributed in the priority outlined in table 9. Table 9 Interest Waterfall (During And After The Reinvestment Period, Unless It Is A Post-Acceleration Payment Date, Redemption Date, Or The Stated Maturity Date) Priority Payment 1 Taxes and fees, and then administrative expenses (capped). 2 Senior servicing fee. 3 Hedge payments, if applicable, pro rata. 4 Class A-1 note interest. 5 Class A-2 note interest. 6 Class A coverage tests(i). 7 Class B note interest. 8 Class B coverage tests(i). 9 Class B note deferred interest. 10 Class C note interest. 11 Class C note coverage tests(i). 12 Class C note deferred interest. 13 Subordinated servicing fee. 14 Administrative expenses (uncapped); and then hedge payments, if applicable, pro rata. 15 Incentive management fee and to the subordinated noteholders. (i)if it fails, pay according to the note payment sequence(ii) until each test is satisfied. (ii)note payment sequence: class A-1 note principal; then class A-2 note principal; then class B note interest and deferred interest, then class B note principal, then class C note interest and deferred interest, then class C note principal. On each payment date during and after the reinvestment period unless an acceleration following an event of default, DECEMBER 18,

15 principal collections will be distributed in the priority outlined in table 10. Table 10 Principal Waterfall (During And After The Reinvestment Period, Unless It Is A Post-Acceleration Payment Date, Redemption Date, Or The Stated Maturity Date) Priority Payment 1 Items 1-5 of the interest waterfall, sequentially. 2 Item 6 of the interest waterfall. 3 Item 8 of the interest waterfall. 4 Item 11 of the interest waterfall. 5 Item 14 of the interest waterfall. 6 Item 7 of the interest waterfall(i). 7 Item 9 of the interest waterfall(i). 8 Item 10 of the interest waterfall(i). 9 Item 12 of the interest waterfall(i). 10 Note payment sequence(ii). 11 Item 13 of the interest waterfall. 12 Item 14 of the interest waterfall. 13 Hedge payments, if applicable, pro rata. 14 Incentive management fee and to the subordinated noteholders. (i)in each case, only to the extent that the relevant class is the controlling class. (ii)note payment sequence: class A-1 note principal; then class A-2 note principal; then class B note interest and deferred interest, then class B note principal, then class C note interest and deferred interest, then class C note principal. After an event of default has occurred On any payment date, if an acceleration following an event of default, interest and principal proceeds will be distributed in the priority outlined in table 11. Table 11 Interest And Principal Waterfall (Following A Post-Acceleration Payment Date, Redemption Date, Or The Stated Maturity Date) Priority Payment 1 Taxes and fees, and then administrative expenses (capped). 2 Senior servicing fee. 3 Hedge payments, if applicable, pro rata. 4 Class A-1 note interest. 5 Class A-1 note principal. 6 Class A-2 note interest. 7 Class A-2 note principal. 8 Class B note interest. 9 Class B note deferred interest. 10 Class B note principal. 11 Class C note interest. 12 Class C note deferred interest. 13 Class C note principal. 14 Subordinated servicing fee. DECEMBER 18,

16 Table 11 Interest And Principal Waterfall (Following A Post-Acceleration Payment Date, Redemption Date, Or The Stated Maturity Date) (cont.) 15 Administrative expenses (uncapped); and then hedge payments, if applicable, pro rata. 16 Incentive management fee and to the subordinated noteholders. Collateral Servicer Palmer Square Capital Management LLC, the transaction's collateral servicer, is a boutique credit and alternative investment manager firm that was founded in The company currently employs 24 individuals, including 15 investment professionals. As of November 2015, the servicer had approximately $4.0 billion in assets under management. Note Redemption Mandatory redemption If a coverage test is not met on any applicable determination date, the issuer will apply amounts available in the payment account according to the payment priority. Optional redemption On any business day after the non-call period, the notes may be redeemed, in whole but not in part, at the direction of the holders of more than 50% of the subordinated notes' aggregate outstanding amount. Tax redemption If a tax event occurs, any class of notes may be redeemed, in whole but not in part, before their legal final maturity. Redemption can occur at the direction of the holders of at least 50% of the affected class' or the subordinated notes' aggregate outstanding amount. Refinancing On any business day after the non-call period, any class of notes may be refinanced, in whole but not in part, at the direction of the holders of more than 50% of the subordinated notes' aggregate outstanding amount. Under the indenture, the issuer will obtain a partial refinancing only if the following conditions are met: Standard & Poor's is notified of the refinancing. The refinancing proceeds are sufficient to pay the redemption price of the notes being refinanced. The aggregate principal amount of the obligations providing the refinancing is equal to that of the notes being redeemed. The stated maturity of the obligations providing the refinancing is no earlier than that of the notes being refinanced. The refinancing proceeds are used (to the extent necessary) to redeem the applicable notes. The agreements relating to the refinancing contain limited-recourse and nonpetition provisions that are equal to those of the notes being redeemed. The obligations providing the refinancing are not senior in the payment priority to the corresponding notes being redeemed. DECEMBER 18,

17 The costs and expenses incurred from the refinancing are paid or adequately provided for by the refinancing proceeds. The interest rate of the notes providing the refinancing is no greater than that of the notes being redeemed. The voting rights, consent rights, redemption rights, and all other rights of the obligations providing the refinancing are the same as the rights of the corresponding class of secured notes being refinanced. The refinancing will not result in non-compliance with the U.S. risk retention regulations for the issuer or any sponsor. Surveillance We will maintain active surveillance on the rated notes until the notes mature or are retired, or until our ratings on the transaction have been withdrawn. The purpose of surveillance is to assess whether the rated notes are performing within the initial parameters and assumptions applied to each rating category. The issuer is required under the transaction documents to supply periodic reports and notices to Standard & Poor's to maintain continuous surveillance on the rated notes. (For more information on our CLO surveillance process, please see "CDO Spotlight: Standard & Poor's Surveillance Process For Monitoring U.S. Cash Flow CLO Transactions," published April 14, 2011.) Related Criteria And Research Related Criteria Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Sept. 17, 2015 Principles For Rating Debt Issues Based On Imputed Promises, Dec. 19, 2014 CDOs: CDOs Of Project Finance Debt: Global Methodology And Assumptions, March 19, 2014 Guarantee Criteria--Structured Finance, May 7, 2013 Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Global CDOs Of Pooled Structured Finance Assets: Methodology And Assumptions, Feb. 21, 2012 Methodology For Analyzing Rating Confirmation Requests To Establish Subsidiary Special-Purpose Entities in CDOs, Dec. 9, 2009 Surveillance Methodology For Global Cash Flow And Hybrid CDOs Subject To Acceleration Or Liquidation After An EOD, Sept. 2, 2009 Revised CDO Current-Pay Criteria Assumptions For Corporate Debt When Issuers Announce A Distressed Exchange Or Buyback, May 18, 2009 The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs, March 19, 2008 Qualification And Treatment Of Current-Pay Obligations In Global Cash Flow CLOs, July 11, 2007 Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Structured Finance Criteria Introduced For Cayman Islands Special-Purpose Entities, July 18, 2002 Related Research Items Updated In Corporate CDO Criteria Used To Rate CLO Transactions, Sept. 17, 2015 S&P Adds Transparency To Its Effective Date Process For CLOs, April 20, 2015 CDO Monitor Non-Model Approach General Definitions, March 11, 2015 Standard & Poor's Introduces Non-Model Version Of CDO Monitor, Dec. 8, 2014 Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors DECEMBER 18,

18 On Credit Quality, July 2, 2014 Industry Economic And Ratings Outlook: Favorable Conditions Will Likely Lead To Stable To Positive Ratings Activity Among U.S. CLOs, June 17, 2014 Use Of CDO Monitor Simplified, April 7, 2014 How Typical CLO Document Provisions Affect Maintenance Of Collateral Characteristics For Managed CLOs, Nov. 6, 2013 How Deferrable Assets In CLOs Are Treated Under Standard & Poor's Methodology, Oct. 1, 2012 CDO Spotlight: The Relationship Between Long-Dated Assets And Market Value Risk In U.S. Cash Flow CLOs, April 26, 2012 CDO Spotlight: Standard & Poor's Surveillance Process For Monitoring U.S. Cash Flow CLO Transactions, April 14, 2011 Credit FAQ: What Are Credit Estimates And How Do They Differ From Ratings? April 6, 2011 CLO Collateral Managers' Treatment Of First-Lien-Last-Out Loans Could Affect Payments To Investors, Oct. 14, 2010 Standard & Poor's Provides Guidance For Collateral Managers And Trustees Regarding CDO Monitor, Nov. 11, 2009 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, Appendix: Other Defined Terms Break-even default rate (BDR) Standard & Poor's uses its proprietary cash flow model to determine an applicable percentile BDR for each tranche at specific rating levels. The BDR represents Standard & Poor's estimate of the maximum level of gross defaults, based on our stress assumptions, that a tranche can withstand and still fully repay the noteholders (see "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published Sept. 17, 2015, for a full discussion of BDRs and our corporate cash flow criteria). BDR cushion The BDR cushion is the excess of the tranche BDR above the scenario default rate (SDR) at the assigned rating for a given class of rated notes. Standard & Poor's rating The Standard & Poor's rating is the public rating, which is typically the issuer credit rating. Standard & Poor's implied rating The Standard & Poor's implied rating is the rating used in the CDO Evaluator when a Standard & Poor's rating is not publicly available for the related entity or issue. This may include mapping a third party's credit score to Standard & DECEMBER 18,

19 Poor's global rating scale, or ratings derived from ancillary services and other services provided by Standard & Poor's. For more information, please visit the Understanding Ratings and Products & Capabilities site under spratings.com/about/who-we-are. Standard & Poor's default measure (DM) DM describes the annualized weighted average portfolio default rate. DM is computed by taking the average default probability of the assets, weighted by the principal balance, and then annualized by finding the constant annual default rate that gives the weighted-average default probability over the weighted average maturity of the portfolio. Unlike other measures of average default in use, DM encompasses all assets in the portfolio, including defaulted securities and cash, and it reflects the actual maturity of the assets. SDR The SDR is the minimum level of portfolio defaults we expect each CDO tranche to be able to support for each rating level, using Standard & Poor's CDO Evaluator. Subordination Subordination is calculated as the notes' total face amount (including the subordinated notes) that have payment priorities subordinate to the assessed class of notes divided by the notes' total face amount (including the subordinated notes). Target portfolio The target portfolio consists of collateral that has already been purchased and/or collateral for which a commitment to purchase has been initiated, as well as hypothetical portfolio information that the arrangers present to Standard & Poor's for its rating analysis. DECEMBER 18,

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