Telos CLO Ltd./Telos CLO LLC

Transcription

1 Presale: Telos CLO Ltd./Telos CLO LLC Primary Credit Analyst: Timothy J Walsh, New York (1) ; timothy.walsh@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 Sensitivity Analysis MARCH 17,

2 Table Of Contents (cont.) Structural Overview Collateral Pool Guidelines Overcollateralization And Interest Coverage Tests Events Of Default Payment Priorities Collateral Manager Reinvestment Note Redemption Surveillance Related Criteria And Research Appendix: Other Defined Terms MARCH 17,

3 Presale: Telos CLO Ltd./Telos CLO LLC $ Million Floating-Rate Notes This presale report is based on information as of March 17, 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 collateral manager's decision to manage this transaction to maintain the portfolio collateral's original credit quality. This analysis generally reflects the application of our criteria to a combination of purchased collateral, collateral committed to be purchased, and the indicative portfolio of assets provided to us by the collateral manager; it may also reflect our assumptions about the transaction's investment guidelines. The results from Standard & Poor's CDO Evaluator, cash flow model, and sensitivity analysis take into account the above-mentioned portfolio along with the additional assumptions or stresses that form the basis for the assigned preliminary ratings. Preliminary Ratings As Of March 17, 2016 Class Preliminary rating(i) Preliminary amount (mil. $) Interest rate (%) A AAA (sf) Three-month LIBOR plus 1.65 B AA (sf) Three-month LIBOR plus 2.70 C (deferrable) A (sf) Three-month LIBOR plus 3.25 D (deferrable) BBB- (sf) Three-month LIBOR plus 5.00 E (deferrable) BB- (sf) 5.00 Three-month LIBOR plus 7.50 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 March 17, 2016 Class Preliminary rating Preliminary amount (mil. $) Largest industry default test loss amount (mil. $) Largest obligor default test loss amount (mil. $) A AAA (sf) B AA (sf) C (deferrable) A (sf) N/A D (deferrable) BBB- (sf) N/A E (deferrable) BB- (sf) 5.00 N/A Subordinated notes NR N/A N/A MARCH 17,

4 Supplemental Tests As Of March 17, 2016 (cont.) NR--Not rated. N/A--Not applicable. The notes can withstand the loss amounts indicated by the largest industry default test and largest obligor default test at their preliminary rating levels (see "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published Sept. 17, 2015). Transaction Profile Expected closing date April 5, Effective date June Reinvestment period end date N/A. Non-call period end date April Stated maturity date April Total preliminary rated amount $ million. Total note balance (including the subordinated notes) $ million. Collateral A static pool consisting primarily of broadly syndicated senior secured loans. Structure type A cash flow CLO consisting of broadly syndicated loans. Structure purpose Arbitrage. Management An actively managed portfolio. Note payment frequency Quarterly, beginning in July Issuer Telos CLO Ltd. (incorporated in the Cayman Islands). Co-issuer Telos CLO LLC (organized in Delaware). Initial purchaser SG Americas Securities LLC. Trustee U.S. Bank N.A. N/A--Not applicable. CLO--Collateralized loan obligation. Collateral Manager Collateral manager Telos Asset Management LLC. Senior/subordinated/incentive management fee (bps) 10/20/2000. No. of CLOs managed (i) Six. Assets under management (i) $1.85 billion. (i)as of December CLOs--Collateralized loan obligations. Portfolio Information As Of March 17, 2016 Target assets (mil. $) Target par balance Par balance of identified collateral Par balance of collateral not yet identified 0.00 Eligible investments N/A Standard & Poor's rating (% of identified collateral) Standard & Poor's implied rating (% of identified collateral) 6.86 Ramp-up completion (% of target par balance identified) MARCH 17,

5 Portfolio Information As Of March 17, 2016 (cont.) Obligors identified No. of obligors 96 Avg. obligor holding (%) 1.04 Largest-obligor holding (%) 1.60 Smallest-obligor holding (%) 0.30 Benchmark statistics Maximum weighted avg. maturity (approx. years) 5.25 Portfolio weighted avg. maturity (years) 4.86 Minimum weighted avg. rating N/A Portfolio weighted avg. rating B Minimum weighted avg. spread (%) 4.00 Portfolio weighted avg. spread (%) 4.04 Portfolio weighted avg. spread, including LIBOR floors (%) 4.38 Standard & Poor's default measure (%) 6.08 N/A--Not applicable. Rationale The preliminary ratings assigned to Telos CLO Ltd./Telos CLO LLC's floating-rate notes reflect 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 (see "Update To 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 comprises primarily broadly syndicated speculative-grade senior secured term loans. The collateral manager'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: MARCH 17,

6 The transaction will be exposed to the market value of defaulted or deferring assets. Any defaulted or deferring assets in the portfolio will be carried at the lower of their recovery rate or market value in the overcollateralization tests' numerator. An event of default will be triggered if the class A notes' overcollateralization ratio falls below %; therefore, the probability of an event of default would increase if the portfolio experiences significant credit migration and depressed market values. According to the transaction documents, the event of default overcollateralization ratio is calculated without ratings-based haircuts but includes defaulted assets carried at their market value. 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). For other collateralized loan obligations (CLOs) that invest in any of the Telos CLO Ltd. tranches that are junior to the class A notes, we would assume zero recoveries because the Telos CLO Ltd. class A noteholders have the ability to liquidate the transaction without any of the junior tranches' vote if an event of default occurs because the class A notes' overcollateralization ratio falls below % (see "Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published Sept. 17, 2015). The collateral manager has the ability to purchase current-pay obligations for up to 2.50% of the collateral pool. We analyzed the transaction assuming that the portfolio holds the maximum amount of current pay obligations that are eligible for purchase and that each is rated 'CCC-'. This analysis is consistent with our global cash flow CDO criteria (see "Qualification And Treatment Of Current-Pay Obligations In Global Cash Flow CLOs," published July 11, 2007). Our quantitative analysis also reflects the transaction's ability to invest in certain securities within the concentration limits, including up to 5.00% of the portfolio in obligations that pay less frequently than quarterly but at least semiannually and up to 5.00% of the portfolio in fixed-rate obligations. The collateral manager may vote in favor of any waiver, modification, amendment, or variance that would extend a collateral obligation's maturity. However, according to the transaction documents, the collateral manager can only do so if, after giving effect to such amendment or modification, the weighted average life test must be satisfied, no maturity amendment will extend such collateral obligation's stated maturity beyond the rated notes' stated maturity and the total principal amount of all maturity amendments since the closing date will not exceed 10% of the target portfolio amount, in each case, unless such collateral obligation is sold within 20 days (see "CDO Spotlight: The Relationship Between Long-Dated Assets And Market Value Risk In U.S. Cash Flow CLOs," published April 26, 2012). On any payment date after the non-call period, the issuer may redeem and refinance or reprice any class or classes of notes, in whole but not in part, as long as it satisfies certain conditions (see the Note Redemption section for a list of these conditions). We would expect the outstanding principal amount and any accrued and unpaid interest to be paid to the rated notes being redeemed. The issuer may not reprice the class A notes. The transaction can reclassify a capped amount of principal proceeds as interest proceeds, provided that certain other conditions, as outlined in the transaction documents, are satisfied. We will consider this reclassification when performing our effective date rating analysis. The collateral manager can enter into hedging transactions. We expect that the hedge transaction agreements will be structured with counterparty replacement provisions consistent with our global structured finance counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published June 25, 2013). The transaction does not have a reinvestment period or the ability to purchase assets outside of the ramp-up period. MARCH 17,

7 Portfolio Analysis As of March 17, 2016, the issuer had identified % of the portfolio's collateral and purchased or committed to purchase approximately 59.24% of the portfolio's target par amount. As the portfolio composition changes, the information and results presented in tables 1-7 and charts 1-5 are also likely to change. Top Obligor Holdings The collateral pool presented to Standard & Poor's for its rating analysis comprises obligors in the industries shown in table 1. Table 1 Top Obligor Holdings As Of March 17, 2016 Notional amount (mil. $) Notional amount (%) Obligor reference Industry Security type 1 Forest products Senior secured 2 Business equipment and services Senior secured 3 Electronics/electrical Senior secured 4 Drugs Senior secured Cov-Lite 5 Food service Senior secured 6 Business equipment and services Senior secured 7 Automotive Senior secured 8 Oil and gas Senior secured 9 Home furnishings Senior secured 10 Clothing/textiles Senior secured Standard & Poor's rating Standard & Poor's implied rating CreditWatch/outlook Obligor Cumulative Obligor Cumulative B+ N/A Stable B N/A Watch Neg BB+ N/A Stable B+ N/A Stable B N/A Stable B+ N/A Stable B+ N/A Stable BB- N/A Stable B+ N/A Stable B N/A Stable N/A--Not applicable. Industry Distribution The collateral pool presented to Standard & Poor's for its rating analysis comprises the industry concentrations shown in chart 1. MARCH 17,

8 Chart 1 Rating Distribution The collateral pool presented to Standard & Poor's for its rating analysis comprises the rating distributions shown in chart 2. MARCH 17,

9 Chart 2 Maturity Distribution The collateral pool presented to Standard & Poor's for its rating analysis comprises the maturity distributions shown in chart 3. MARCH 17,

10 Chart 3 Spread Distribution The identified collateral pool presented to Standard & Poor's for its rating analysis comprises the spread distribution shown in table 2 and chart 4. Table 2 Performing Identified Collateral Spread Distribution Actual weighted avg. spread (%) 4.04 Standard deviation of spread (%) 0.96 Minimum weighted avg. spread covenant (%) 4.00 Actual weighted avg. spread, including LIBOR floors (%) 4.38 Actual weighted avg. LIBOR floor (%) MARCH 17,

11 Chart 4 Recovery Rate Distribution The identified collateral pool presented to Standard & Poor's for its rating analysis comprises the recovery rate distributions shown in table 3 and the recovery rating distributions shown in chart 5. Table 3 Performing Identified Collateral Recovery Rate Distribution (Based On % Of Par) Weighted average recovery rate (%) AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) Standard deviation of recovery rate (%) AAA (sf) AA (sf) A (sf) MARCH 17,

12 Table 3 Performing Identified Collateral Recovery Rate Distribution (Based On % Of Par) (cont.) BBB (sf) BB (sf) Minimum weighted average recovery rate covenant (%) AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) Chart 5 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 MARCH 17,

13 recovery rate (see table 4). Table 4 Recovery Rate Sensitivity As Of March 17, 2016 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 AAA (sf) AAA (sf) AA+ (sf) B AA (sf) AA (sf) AA- (sf) C A (sf) A (sf) BBB+ (sf) D BBB- (sf) BBB- (sf) BB+ (sf) E BB- (sf) BB- (sf) BB- (sf) BDR--Break-even default rate. Correlation sensitivity 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 March 17, 2016 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 AAA (sf) AAA (sf) AA+ (sf) B AA (sf) AA (sf) AA- (sf) C A (sf) A (sf) A- (sf) D BBB- (sf) BBB- (sf) BBB- (sf) E BB- (sf) BB- (sf) BB- (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 collateral pool with the highest spread and lowest base-case recoveries (see table 7). Table 7 Default Biasing As Of March 17, 2016 Class Preliminary rating Resulting rating transition A AAA (sf) AA+ (sf) MARCH 17,

14 Table 7 Default Biasing As Of March 17, 2016 (cont.) B AA (sf) A+ (sf) C A (sf) BBB+ (sf) D BBB- (sf) BB+ (sf) E BB- (sf) B+ (sf) Structural Overview Telos CLO Ltd., the issuer, is a special-purpose entity that was incorporated as an exempted company with limited liability under the laws of the Cayman Islands. Telos CLO 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 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. Collateral Pool Guidelines Standard & Poor's expects the collateral pool to primarily comprise U.S. dollar-denominated senior secured loans to broadly syndicated corporate borrowers. We expect the collateral portfolio's effective date guidelines will comply with the limitations shown in table 8. Table 8 Collateral Pool Guidelines Limit (%) Purchase limitations Other than senior secured loans, cash, and eligible investments 0.0 Bridge loans 5.0 Collateral obligations with a Standard & Poor's rating Covenant-lite loans 60.0 Current-pay obligations 2.5 Debtor-in-possession obligations/single obligor 5.0/2.0 Deferrable obligations 5.0 Delayed-drawdown and revolving obligations 5.0 Discount obligations 5.0 Fixed-rate obligations 5.0 Obligations that pay interest less frequent than quarterly but at least semiannually 5.0 Obligor and its affiliates: single/up to five 2.0/2.5 Participation interests and third-party credit exposure limits cannot be exceeded 5.0 Standard & Poor's industry classification: single/up to two/largest 10.0/12.0/15.0 Standard & Poor's rating derived from another agency MARCH 17,

15 Table 8 Collateral Pool Guidelines (cont.) Standard & Poor's rating of 'CCC+' or below 0.0 Long-dated obligations, step-down obligations, step-down obligations, bonds, letters of credit, structured finance obligations, synthetic securities, zero-coupon obligations, second-lien loans, unsecured loans, and small obligor loans Location Other than the U.S Emerging markets 0.0 Greece, Ireland, Italy, Portugal, or Spain 0.0 N/A--Not applicable. 0.0 Overcollateralization And Interest Coverage Tests In our view, the transaction benefits from certain structural features that require sequential mandatory redemption of the rated notes, upon any overcollateralization or interest coverage test breach (see table 9). Table 9 Overcollateralization And Interest Coverage Tests Class Min. O/C required (%) Min. I/C required (%) A/B C D E O/C- Overcollateralization test. I/C- Interest coverage test. N/A--Not applicable. Events Of Default Under certain conditions, the following events of default may result in the acceleration of payments to the preliminary rated notes or in the collateral's liquidation: A failure to pay interest when due and payable to the class A or B notes or, if there are no class A or B notes outstanding, a failure to pay interest to the senior-most class of notes outstanding (each within the related five-business-day grace period). A failure to pay principal, interest, deferred interest, or the redemption price on any secured note at the stated maturity or on any redemption date. On any payment date, a failure to disburse amounts in 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 Certain covenants under the legal documents are breached and are not cured within the 30-day cure period. The issuer's or co-issuer's voluntary or involuntary bankruptcy. The class A overcollateralization ratio falls below %. The event of default overcollateralization ratio is calculated without ratings-based haircuts but includes defaulted assets carried at their market value. The trigger level and the vesting of voting rights for acceleration and liquidation are consistent with Standard & Poor's CDO MARCH 17,

16 criteria (see "The Use Of Rating-Based Haircuts In Event Of Default Overcollateralization Tests For CDOs," published March 19, 2008). Payment Priorities Under the transaction documents, the collateral's interest and principal collections are payable according to separate payment priorities unless there is an acceleration following an event of default. On each distribution date, unless there is an acceleration following an event of default, interest collections will be distributed in a specified priority (see table 10). Table 10 Interest Waterfall (Unless There Is An Acceleration Following An Event Of Default) Priority Payment 1 Taxes and fees and then administrative expenses (capped). 2 Senior management fee. 3 Hedge payments, if applicable. 4 Class A note interest. 5 Class B note interest. 6 Class A/B coverage tests(i). 7 Class C note interest. 8 Class C coverage tests(i). 9 Class C note deferred interest. 10 Class D note interest. 11 Class D coverage tests(i). 12 Class D note deferred interest. 13 Class E note interest. 14 Class E coverage tests(i). 15 Class E note deferred interest. 16 Effective date ratings confirmation. If it is not obtained, pay according to the note payment sequence(ii) to the extent necessary to obtain a rating agency confirmation or until the notes are paid in full. 17 Subordinated management fee and then the deferred subordinated management fee (capped). 18 Administrative expenses (uncapped) and then hedge payments, if applicable. 19 Subordinated noteholders, up to the target rate of return. 20 Incentive management fee and subordinated noteholders. (i)if it fails, pay according to the note payment sequence. (ii)note payment sequence: class A note principal; then class B note principal; then class C note interest; then class C note deferred interest; then class C note principal; then class D note interest; then class D note deferred interest; then class D note principal; then class E note interest; then class E note deferred interest; and then class E note principal. On each distribution date, unless there is an acceleration following an event of default, principal collections will be distributed in a specified priority (see table 11). Table 11 Principal Waterfall (Unless There Is An Acceleration Following An Event Of Default) Priority Payment 1 Items 1-15 and item 16 of the interest waterfall, sequentially(i). MARCH 17,

17 Table 11 Principal Waterfall (Unless There Is An Acceleration Following An Event Of Default) (cont.) 2 On any redemption date, pay according to the note payment sequence(ii). 3 Note payment sequence(ii). 4 Item 17 of the interest waterfall. 5 Item 18 of the interest waterfall. 6 Subordinated noteholders, up to the target rate of return. 7 Incentive management fee and subordinated noteholders. (i)in each case, only to the extent that the relevant class is the controlling class. (ii)note payment sequence: class A note principal; then class B note principal; then class C note interest; then class C note deferred interest; then class C note principal; then class D note interest; then class D note deferred interest; then class D note principal; then class E note interest; then class E note deferred interest; and then class E note principal. After an acceleration following an event of default has occurred On each payment date, if there is an acceleration following an event of default, interest collections and principal proceeds will be distributed in a specified priority (see table 12). Table 12 Interest And Principal Waterfall (After Acceleration Following An Event Of Default) Priority Payment 1 Taxes and governmental fees; then, administrative expenses (capped). 2 Hedge payments, if applicable. 3 Senior management fee. 4 Class A note interest. 5 Class A note principal. 6 Class B note interest. 7 Class B note principal. 8 Class C note interest and then class C note deferred interest. 9 Class C note principal. 10 Class D note interest and then class D note deferred interest. 11 Class D note principal. 12 Class E note interest and then class E note deferred interest. 13 Class E note principal. 14 Subordinated management fee and then the deferred subordinated management fee (capped). 15 Administrative expenses (uncapped) and then hedge payments, if applicable. 16 Subordinated noteholders, up to the target rate of return. 17 Incentive management fee and subordinated noteholders. Collateral Manager Telos Asset Management LLC (Telos), formerly Tricadia Loan Management LLC, is a global credit manager with approximately $1.85 billion in assets under management as of Dec. 31, Telos, led by President John McCormick, manages vehicles that primarily invest in senior secured corporate credit via CDOs, credit opportunity funds and managed accounts. This transaction will be the seventh CLO managed by Telos. Telos is majority-owned by Tiptree Financial. MARCH 17,

18 Reinvestment Under the transaction documents, following the completion of the ramp-up period, the issuer is not permitted to purchase any additional collateral obligations. Note Redemption Optional redemption On any payment date after a non-call period, the notes may be redeemed, in whole but not in part, at the direction of more than 50% of the subordinated notes' aggregate outstanding amount. Mandatory redemption If a coverage test is not satisfied on any applicable determination date, the issuer will use amounts available in the payment account to redeem the notes according to the payment priorities. Tax redemption If a tax event occurs, the notes may be redeemed, in whole but not in part, on any payment date prior to their legal final maturity at the direction of more than 50% of the affected class' or the subordinated notes' aggregate outstanding amount. Partial redemption by refinancing On any payment date after the non-call period, any class of secured notes may be redeemed, in whole but not in part, through the use of refinancing proceeds, at the direction of the collateral manager. The issuer may partially redeem the notes by refinancing, subject to the following conditions: Standard & Poor's is notified of such refinancing. The refinancing proceeds are at least sufficient to pay the redemption price of the corresponding notes being redeemed. The agreements relating to the refinancing contain limited-recourse and nonpetition provisions that are equal to those applicable to the notes being redeemed. The stated maturity of the obligations providing the refinancing is no earlier than that of the corresponding notes being refinanced. The fees and expenses incurred in connection with the refinancing are paid or adequately provided for from the refinancing proceeds. The interest rate of the obligations providing the refinancing is no greater than that of the notes being refinanced. The obligations providing the refinancing do not rank higher in the payment priority than the corresponding notes being redeemed. The voting rights, consent rights, redemption rights, and all other rights of the obligations providing the refinancing are the same as those of the notes being redeemed. The refinancing is approved by more than 50% of the subordinated notes' aggregate outstanding amount. The principal amount of the obligations providing the refinancing is equal to the outstanding principal amount of the corresponding notes being redeemed. MARCH 17,

19 Optional repricing On any payment date after the non-call period, at the direction of the holders of at least 50% of the subordinated notes' aggregate outstanding amount and the collateral manager's consent, the issuer can reduce the spread over LIBOR on any class of notes (excluding the class A notes). Any nonconsenting noteholders' will have their notes redeemed at the aggregate outstanding amount plus accrued and unpaid interest. Surveillance We will maintain active surveillance on the rated notes until the notes mature or are retired or until Standard & Poor's 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 terms of 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, 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 Global Corporate Rating Trends 2016: Largest Negative Swing Since 2009, Jan. 11, 2016 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, MARCH 17,

20 Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 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 & Poor's global rating scale, or ratings derived from ancillary services and other services provided by Standard & Poor's. MARCH 17,

21 For more information, please visit the Understanding Ratings and Products & Capabilities site under spratings.com/about/who-we-are. SDR The SDR is the minimum level of portfolio defaults we expect each CDO tranche to be able to support the specific rating level using Standard & Poor's CDO Evaluator. 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 WAM 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. 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. MARCH 17,

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