Presale:
Dryden 42 Senior Loan Fund/Dryden
42 Senior Loan Fund LLC
Primary Credit Analyst:
Christopher R Davis, New York (1) 212-438-3019; [email protected]
Secondary Contact:
Andrew J Loken, New York (1) 212-438-2755; [email protected]
Lead Analytical Manager, U.S. Commercial Credit:
Winston W Chang, New York (1) 212-438-8123; [email protected]
Table Of Contents
$366.00 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
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Table Of Contents (cont.)
Structural Overview
Collateral Pool Guidelines
Overcollateralization, Interest Coverage, And Interest Reinvestment Tests
Events Of Default
Payment Priorities
Collateral Manager
Reinvestment
Note Redemption
Related Criteria And Research
Appendix: Other Defined Terms
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Presale:
Dryden 42 Senior Loan Fund/Dryden 42 Senior
Loan Fund LLC
$366.00 Million Floating-Rate Notes
This presale report is based on information as of April 15, 2016. 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 bases its portfolio analysis for this transaction on the collateral manager's decision
to manage this transaction to maintain the original credit quality of the portfolio collateral. 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 that the collateral manager provided to us. The analysis 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 April 15, 2016
Class
Preliminary
rating(i)
A
AAA (sf)
B
Preliminary amount
(mil. $)
Subordination
(%)
SDR
(%)
248.00 Three-month LIBOR
plus 1.56
38.27
64.18
66.90
2.72
AA (sf)
56.00 Three-month LIBOR
plus 2.40
24.33
56.56
63.18
6.63
C (deferrable)
A (sf)
24.00 Three-month LIBOR
plus 3.45
18.36
50.81
55.77
4.96
D (deferrable)
BBB (sf)
20.00 Three-month LIBOR
plus 5.00
13.38
44.76
49.35
4.60
E (deferrable)
BB- (sf)
18.00 Three-month LIBOR
plus 7.50
8.90
35.74
38.72
2.98
Subordinated
notes
NR
35.75 N/A
N/A
N/A
N/A
N/A
Interest rate (%)
BDR BDR cushion
(%)
(%)
(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 April 15, 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)
248.00
37.85
43.21
56.00
32.98
36.59
C (deferrable)
A (sf)
24.00
N/A
29.73
D (deferrable)
BBB (sf)
20.00
N/A
22.05
E (deferrable)
BB- (sf)
18.00
N/A
17.80
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Supplemental Tests As Of April 15, 2016 (cont.)
Class
Subordinated
notes
Preliminary
rating
Preliminary amount
(mil. $)
Largest industry default test loss
amount (mil. $)
Largest obligor default test loss
amount (mil. $)
35.75
N/A
N/A
NR
NR--Not rated. N/A--Not applicable.
Transaction Profile
Expected closing date
May 26, 2016.
Effective date
To be determined.
Reinvestment period end date
Jan. 15, 2021.
Non-call period end date
July 15, 2018.
Stated maturity date
July 15, 2027.
Total preliminary rated amount
$366.00 million.
Total note balance (including the subordinated notes)
$401.75 million.
Collateral
A revolving pool consisting primarily of broadly syndicated senior
secured loans.
Structure type
A cash flow CLO consisting primarily of broadly syndicated senior
secured loans.
Structure purpose
Arbitrage.
Management
An actively managed portfolio.
Note payment frequency
Quarterly, beginning Oct. 10, 2016.
Issuer
Dryden 42 Senior Loan Fund (incorporated in the Cayman Islands).
Co-issuer
Dryden 42 Senior Loan Fund LLC (incorporated in Delaware).
Placement agent
BNP Paribas Securities Corp.
Trustee, security registrar, security paying agent, transfer agent, and LIBOR
calculation agent
U.S. Bank N.A.
Hedge counterparty
None.
CLO--Collateralized loan obligation.
Collateral Manager
Collateral manager
PGIM Inc.
Senior/subordinated/incentive management fee (bps)
15/25/2000
No. of Standard & Poor's-rated U.S. CLOs managed(i)
14.
Standard & Poor's-rated U.S. CLO assets under management(i)
$5.83 billion.
(i)As of January 2016. CLOs--Collateralized loan obligations. bps--Basis points.
Portfolio Information As Of April 15, 2016
Target assets (mil. $)
Target par balance
400.00
Par balance of identified collateral
360.30
Par balance of collateral not yet identified
Eligible investments
Standard & Poor's rating (% of identified collateral)
Standard & Poor's implied rating (% of identified collateral)
Ramp-up completion (% of total collateral)
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39.70
N/A
98.15
1.85
65.30
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Portfolio Information As Of April 15, 2016 (cont.)
Obligors identified
No. of obligors
231
Average obligor holding (%)
0.43
Largest-obligor holding (%)
1.95
Smallest-obligor holding (%)
0.07
Benchmark statistics
Maximum weighted avg. maturity (approx. years)
8.00
Portfolio weighted avg. maturity (years)
6.25
Minimum weighted avg. rating
N/A
Portfolio weighted avg. rating
B+
Minimum weighted avg. spread (%)
3.65
Portfolio weighted avg. spread (%)
3.77
Portfolio weighted avg. spread, including LIBOR floors (%)
4.07
Standard & Poor's default measure (%)
5.61
N/A--Not applicable.
Rationale
The preliminary ratings assigned to Dryden 42 Senior Loan Fund/Dryden 42 Senior Loan Fund LLC's $366.00 million
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 including excess spread).
• The cash flow structure, which can withstand the default rate projected by Standard & Poor's CDO Evaluator model,
assessed using the assumptions and methods outlined in its corporate collateralized debt obligation (CDO) criteria
(see "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," 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 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 0.3439%-12.8133%.
• 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 rated notes' outstanding balance.
• The transaction's interest diversion test, a failure of which, during the reinvestment period, will lead to the
reclassification of up to 50.0% of available excess interest proceeds (before paying certain uncapped administrative
expenses, subordinate and incentive management fees, hedge amounts, supplemental reserve account deposits, and
subordinated note payments) into principal proceeds to purchase additional collateral assets or to pay principal on
the notes sequentially at the option of the collateral manager after the end of the non-call period.
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Rating Considerations
In our analysis, we considered the following factors, among others:
• The transaction will be exposed to the market value of defaulted assets and assets rated 'CCC+' or lower. Any
defaulted assets in the portfolio will be carried at the lower of their recovery rate or market value of the
overcollateralization 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 of the overcollateralization tests' numerator.
• The transaction will trigger an event of default if the class A notes' overcollateralization ratio falls below 102.5%.
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 rating-based haircuts, but it includes defaulted assets carried at the
lower of their market and recovery values. 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 May 19, 2008).
• The concentration limits allow for the purchase of obligations that pay less frequently than quarterly but at least
semiannually up to 5.0% of the portfolio; current-pay obligations up to 2.5% of the portfolio; and fixed-rate
obligations up to 5.0% of the portfolio. The results of our quantitative analysis reflect the manager's ability to
purchase such securities. The concentration limits also allow the manager to purchase up to 1.0% of the portfolio in
permitted deferrable CDOs.
• The collateral manager may not purchase or vote in favor of any waiver, modification, or amendment that would
extend a collateral obligation's maturity beyond the notes' stated maturity date. A CLO concentrated in long-dated
assets could be exposed to market-value risk at maturity because the collateral manager may be forced 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 can hold up to 80% of its total collateral in covenant-lite loans. However, the collateral manager
may still submit a request to the noteholders of the controlling class for an exception to the above limit. As long as
there is written consent by a majority of the controlling class, the collateral manager and the issuer will comply with
the terms of the exception.
• The collateral manager may reclassify principal proceeds remaining in the ramp-up account as interest proceeds up
to a capped amount as long as the conditions required for the effective date are met and rating agency confirmation
has been obtained.
• The collateral manager can enter into trading plans to satisfy the reinvestment guidelines even though a single trade
that is part of such trading plan may not independently satisfy all of the reinvestment guidelines. However,
according to the transaction documents, only one trading plan may be entered into at a time, each trading plan is
limited to 5.0% of the collateral principal amount, each trading plan may not extend beyond a determination date on
the notes or more than 10 business days, and the collateral manager's ability to enter into future trading plans may
be prohibited if any previous trading plan resulted in the deterioration of the issuer's compliance with any of the
reinvestment guidelines.
• On any day after the non-call period, the issuer may re-price any class other than the class A notes or redeem and
refinance any class or classes of notes, in whole but not in part, as long as certain conditions are satisfied (see the
Note Redemption section for a list of these conditions). We expect the outstanding principal amount and any
accrued and unpaid interest will be paid to the rated notes being redeemed.
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Portfolio Analysis
As of April 15, 2016, the issuer had identified approximately 90.07% of the portfolio's collateral. As the portfolio
composition changes, the information and results presented below (see tables 1-7 and charts 1-4) will likely change.
Top Obligor Holdings
The identified collateral pool presented to Standard & Poor's for its rating analysis comprises top obligors in the
industries shown in table 1.
Table 1
Top Obligor Holdings As Of April 15, 2016
Notional amount
(mil. $)
Obligor
reference Industry
1
Health care
2
Standard
Standard & Poor's
Security & Poor's implied
type
rating
rating
CreditWatch/outlook
Senior
secured
Notional amount (%)
Obligor Cumulative Obligor Cumulative
B+
N/A
Negative
7.03
7.03
1.76
1.76
Electronics/electrical Senior
secured
BB+
N/A
Stable
6.25
13.28
1.56
3.32
3
Food/drug retailers
Senior
secured
B+
N/A
Positive
5.97
19.26
1.49
4.81
4
Health care
Senior
secured
BB
N/A
Stable
5.97
25.23
1.49
6.31
5
Business equipment
and services
Senior
secured
B+
N/A
Stable
5.73
30.96
1.43
7.74
6
Retailers (except
food and drug)
Senior
secured
N/A
Stable
4.48
35.44
1.12
8.86
7
Electronics/electrical Senior
secured
N/A
Stable
4.40
39.84
1.10
9.96
8
Oil and gas
N/A
Stable
4.24
44.08
1.06
11.02
9
Electronics/electrical Senior
secured
BBB-
N/A
Stable
4.23
48.31
1.06
12.08
10
Cable and satellite
television
BB
N/A
Watch positive
4.00
52.31
1.00
13.08
BB+
Senior
secured
Senior
secured
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.
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Chart 1
Rating Distribution
The collateral pool presented to Standard & Poor's for its rating analysis comprises the rating distribution shown in
chart 2.
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Chart 2
Maturity Distribution
The collateral pool presented to Standard & Poor's for its rating analysis comprises the maturity distribution shown in
chart 3.
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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 (%)
3.75
Standard deviation of spread (%)
1.04
Minimum weighted avg. spread covenant (%)
3.65
Actual weighted avg. spread, including LIBOR floors (%)
4.04
Actual weighted avg. LIBOR floor (%)
0.94
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Chart 4
Recovery Rate Distribution
The identified collateral pool presented to Standard & Poor's for its rating analysis comprises 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)
45.84
AA (sf)
55.32
A (sf)
60.83
BBB (sf)
66.90
BB (sf)
71.93
Standard deviation of recovery rate (%)
AAA (sf)
15.76
AA (sf)
16.77
A (sf)
16.79
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Table 3
Performing Identified Collateral Recovery Rate Distribution (Based On % Of
Par) (cont.)
BBB (sf)
16.92
BB (sf)
17.39
Minimum weighted avg. recovery rate covenant (%)
AAA (sf)
45.00
AA (sf)
54.50
A (sf)
60.00
BBB (sf)
66.25
BB (sf)
71.25
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
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recovery rate (see table 4).
Table 4
Recovery Rate Sensitivity As Of April 15, 2016
Resulting rating transition
Class
Preliminary
rating
10% recovery
increase
10% recovery
decrease
A
AAA (sf)
AAA (sf)
B
AA (sf)
C
(deferrable)
BDR cushion at indicated rating (%)
Current (based on
preliminary rating)
10% recovery
increase
10% recovery
decrease
AA+ (sf)
2.72
7.77
13.34
AA (sf)
AA (sf)
6.63
13.55
0.83
A (sf)
A (sf)
A- (sf)
4.96
12.99
1.44
D
(deferrable)
BBB (sf)
BBB (sf)
BBB-(sf)
4.60
14.17
0.27
E
(deferrable)
BB- (sf)
BB- (sf)
B+ (sf)
2.98
13.97
0.25
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
15.0
5.0
Base case equals preliminary rating
20.0
7.5
Above base case
25.0
10.0
Table 6
Correlation Sensitivity As Of April 15, 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)
2.72
8.45
15.86
B
AA (sf)
AA (sf)
AA (sf)
6.63
11.17
2.64
C (deferrable) A (sf)
A (sf)
A (sf)
4.96
8.49
1.83
D (deferrable) BBB (sf)
BBB (sf)
BBB (sf)
4.60
7.07
2.43
E (deferrable) BB- (sf)
BB- (sf)
BB- (sf)
2.98
3.82
2.25
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).
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Table 7
Default Biasing As Of April 15, 2016
Class
Preliminary rating Resulting rating transition
A
AAA (sf)
AA+ (sf)
B
AA (sf)
A+ (sf)
C (deferrable)
A (sf)
BBB+ (sf)
D (deferrable)
BBB (sf)
BB (sf)
E (deferrable)
BB- (sf)
CCC- (sf)
Structural Overview
Dryden 42 Senior Loan Fund, the issuer, is a special-purpose entity (SPE) that was incorporated as an exempted
company with limited liability under the laws of the Cayman Islands. Dryden 42 Senior Loan Fund LLC, the co-issuer,
was incorporated 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. We expect the issuer's
SPE provisions to be consistent with our bankruptcy-remoteness criteria. In rating this transaction, we will review the
legal matters we believe are relevant to our analysis, as outlined in our criteria.
Collateral Pool Guidelines
Standard & Poor's expects the collateral pool to comprise primarily U.S. dollar-denominated senior secured loans to
broadly syndicated corporate borrowers.
We expect the collateral portfolio's effective date and reinvestment guidelines to comply with the limitations shown in
table 8.
Table 8
Collateral Pool Guidelines
Limit (%)
Purchase limitations
Assets purchased at 60% below par
0.0
Bonds
0.0
Letters of credit
0.0
Long-dated assets
0.0
Obligations with an attached equity feature
0.0
Step-down obligations
0.0
Step-up obligations
0.0
Structured finance obligations
0.0
Zero-coupon obligations
0.0
Obligation type
Other than senior secured loans, cash, and eligible investments
Covenant-lite loans
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7.5
80.0
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Table 8
Collateral Pool Guidelines (cont.)
Limit (%)
Current-pay obligations
2.5
Debtor-in-possession obligations/single obligor
7.5/2.0
Deferrable obligations
1.0
Delayed-drawdown and revolving obligations
10.0
Fixed-rate obligations
5.0
Obligations that pay interest less frequent than quarterly
5.0
Obligor and its affiliates: single/up to five
2.0/2.5
Participation interests
20.0
Second-lien and senior unsecured loans
4.0
Standard & Poor's industry classification: single/one additional/one additional
10.0/12.0/15.0
Standard & Poor's rating of 'CCC+' or below
7.5
Location
Other than the U.S.
20.0
Emerging markets
N/A--Not applicable.
Overcollateralization, Interest Coverage, And Interest Reinvestment 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 or the reinvestment of
excess interest proceeds or the opportunity to redeem the preliminary rated notes after the non-call period, upon a
breach of any interest diversion test (see table 9).
Table 9
Overcollateralization, Interest Coverage, And Interest Diversion Tests
Class
Min. O/C required (%)
Min. I/C required (%)
B
121.58
120.00
C
113.95
115.00
D
108.94
110.00
E
104.29
105.00
Interest diversion test(i)
105.79
N/A
(i)The interest diversion test will be satisfied when the class E O/C is at least 105.79%. 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 on the class A or B notes or if no class A or B notes remain
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•
•
•
•
•
•
outstanding, a failure to pay interest on the senior-most class outstanding (subject to a five-business-day grace
period).
A failure to pay principal or the redemption price of any secured note at its stated maturity or redemption date
(subject to a seven-business-day grace period).
On any payment or redemption date, a failure to disburse at least $25,000 according to the priority of payments
(subject to a 15-business-day grace period).
The class A overcollateralization ratio falls below 102.50%, which is calculated without rating-based haircuts but
includes defaulted assets carried at the lower of their market or recovery values. 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 May 19, 2008).
The issuer, co-issuer, or trust estate is required to register as an "investment company" under the Investment
Company Act of 1940.
Certain covenants under the legal documents are breached and not cured within the 30-day cure period.
The voluntary or involuntary bankruptcy of the issuer or co-issuer.
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 distribution date during and after the reinvestment period, unless there is an acceleration following an event
of default, interest collections will be distributed in the below priority (see table 10).
Table 10
Interest Waterfall During And After The Reinvestment Period (Unless There Is An Acceleration Following An
Event Of Default )
Priority
Payment
1
Taxes and fees and then, administrative expenses (capped).
2
Hedge payments other than for termination.
3
Base collateral management fees, including any unpaid amounts from previous payment dates.
4
Class A note interest.
5
Class B note interest.
6
Hedge termination payments (other than those in connection with a subordinated termination event).
7
Senior coverage tests(i).
8
Class C note interest.
9
Class C coverage tests(i).
10
Class C note deferred interest.
11
Class D note interest.
12
Class D coverage tests(i).
13
Class D note deferred interest.
14
Class E note interest.
15
Class E coverage test(i).
16
Class E note deferred interest.
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Table 10
Interest Waterfall During And After The Reinvestment Period (Unless There Is An Acceleration Following An
Event Of Default ) (cont.)
Priority
Payment
17
During the reinvestment period, the interest diversion test. If it fails, use the lesser of 50% of the remaining interest
proceeds and the amount needed to satisfy the test to purchase additional collateral obligations.
18
On the initial payment date, if no ramp-up rating confirmation has occurred, all remaining collateral interest
collections will be deposited into the interest collection account for application according to the payment priority
on the second payment date. On each payment date ramp-up confirmation failure, at the sole option of the
collateral manager, either pay according to the note payment sequence(i) until the ratings are confirmed, or
purchase additional collateral debt obligations until the ratings are confirmed.
19
Other than on the initial payment date, pay additional collateral management fees, including previously unpaid
amounts.
20
Uncapped fees and administrative expenses, sequentially.
21
Hedge termination payments associated with a subordinated termination event.
22
Pay to the supplemental interest reserve account, at the subordinated noteholders' direction.
23
Pay subordinated noteholders, up to a 10% internal rate of return.
24
All remaining amounts: 20% to the collateral manager and 80% to the subordinated notes.
(i)If it fails, pay according to the note payment sequence(ii) until each test is satisfied. (ii)Note payment sequence: class A note principal (including
any defaulted interest); then, class B note principal (including any defaulted interest); then, class C note deferred interest; then, class C note
principal; then, class D note deferred interest; then, class D note principal; then, class E note deferred interest; and then, class E note principal.
On each distribution date during and after the reinvestment period, unless there is an acceleration following an event
of default, principal collections will be distributed in the below priority (see table 11).
Table 11
Principal Waterfall During And After The Reinvestment Period (Unless There Is An acceleration Following An
Event Of Default)
Priority
Payment
1
Items 1-6 of the interest waterfall, sequentially.
2
Item 7 of the interest waterfall.
3
Item 8 of the interest waterfall(i).
4
Item 9 of the interest waterfall.
5
Item 10 of the interest waterfall(i).
6
Item 11 of the interest waterfall(i).
7
Item 12 of the interest waterfall.
8
Item 13 of the interest waterfall(i).
9
Item 14 of the interest waterfall.
10
Item 15 of the interest waterfall.
11
Item 16 of the interest waterfall.
12
On the initial payment date, if ramp-up rating confirmation has not yet occurred, all remaining collateral
principal collections will be deposited into the principal collection account. On any payment date, if failing to
obtain rating agency confirmation, pay according to the note payment sequence(i) until confirmation is
received.
13
If a redemption date (other than a partial redemption by refinancing), pay according to the note payment
sequence(ii).
14
During the reinvestment period, use any special redemption amount to pay according to the note payment
sequence(ii) and remaining amounts to purchase additional collateral debt obligations.
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Table 11
Principal Waterfall During And After The Reinvestment Period (Unless There Is An acceleration Following An
Event Of Default) (cont.)
Priority
Payment
15
After the reinvestment period, reinvest proceeds from unscheduled principal receipts, the sale of credit risk
obligations and (if class A is no longer outstanding) the sale of credit improved obligations. Pay according to
the note payment sequence(ii) with all other proceeds received.
16
Item 19 of the interest waterfall.
17
Item 20 of the interest waterfall.
18
Hedge termination payments associated with a subordinated termination event.
19
Pay subordinated noteholders, up to a 10% internal rate of return.
20
All remaining amounts: 20.00% to the collateral manager and 80.00% to the subordinated notes.
(i)In each case, only to the extent that the relevant class is the controlling class. (ii)Note payment sequence: class A note principal (including any
defaulted interest); then, class B note principal (including any defaulted interest); then, class C note deferred interest; then, class C note principal;
then, class D note deferred interest; then, class D note principal; then, class E note deferred interest; and then, class E note principal.
Collateral Manager
PGIM Inc. is an indirect, wholly-owned subsidiary of Prudential Financial Inc. Through its predecessor companies,
PGIM Inc. has been managing fixed-income portfolios for affiliates since 1875. As of September 2015, PGIM had
approximately $947 billion in assets under management and managed 14 Standard & Poor's-rated U.S. CLOs totaling
$5.91 billion assets under management.
Reinvestment
Under the transaction documents, the transaction must satisfy certain conditions before the issuer can buy collateral
into the portfolio (see tables 12 and 13).
Table 12
Summary Of Trading Conditions During Reinvestment Period
Standard &
Poor's CDO
Monitor
test?
Collateral quality
tests and
concentration
limitations?
New asset
with an
equal or a
higher
rating?
New asset
with the same
or a shorter
maturity?
Type of
trade
Overcollateralization
tests?
New asset minimum
par amount?
Discretionary
Satisfy, maintain, or
improve
The aggregate principal
Satisfy,
balance will be maintained maintain, or
or improved or will at least improve
equal the reinvestment
target par amount(i)
Satisfy, maintain, or
improve
No
No
Unscheduled
principal
Satisfy, maintain, or
improve
N/A
Satisfy,
maintain, or
improve
Satisfy, maintain, or
improve
No
No
Scheduled
principal
Satisfy, maintain, or
improve
N/A
Satisfy,
maintain, or
improve
Satisfy, maintain, or
improve
No
No
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Table 12
Summary Of Trading Conditions During Reinvestment Period (cont.)
New asset
with an
equal or a
higher
rating?
New asset
with the same
or a shorter
maturity?
Satisfy, maintain, or
improve
No
No
Standard &
Poor's CDO
Monitor
test?
Collateral quality
tests and
concentration
limitations?
N/A
Type of
trade
Overcollateralization
tests?
New asset minimum
par amount?
Credit risk
Satisfy, maintain, or
improve
Sale proceeds or the
aggregate collateral
balance will at least equal
the reinvestment target
par amount(i)
Credit
improved
Satisfy, maintain, or
improve
The aggregate principal
Satisfy,
balance will be maintained maintain, or
or improved or will at least improve
equal the reinvestment
target par amount(i)
Satisfy, maintain, or
improve
No
No
Defaulted
Satisfied
Sale proceeds or the
aggregate collateral
balance will at least equal
the reinvestment target
par amount(i)
N/A
Satisfy, maintain, or
improve
No
No
Equity
Satisfy, maintain, or
improve
Sale proceeds or the
aggregate collateral
balance will at least equal
the reinvestment target
par amount(i)
N/A
Satisfy, maintain, or
improve
No
No
(i)The reinvestment target par amount equals $400 million minus any reduction in the aggregate principal amount of the outstanding notes plus
any principal proceeds from additional note issuance. CDO--collateralized debt obligation. N/A--not applicable.
Table 13
Summary Of Trading Conditions After Reinvestment Period
New asset
minimum par
amount?
Standard &
Poor's CDO
Monitor test?
Collateral
quality tests and
concentration
limitations?
New asset with
New asset with the same or a
an equal or a
shorter
higher rating? maturity?
Type of trade
Overcollateralization
tests?
Discretionary
Reinvestment not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment
not allowed
Unscheduled
principal
Satisfied
The aggregate
principal balance
will be maintained
or improved or will
at least equal the
reinvestment target
par amount(i)
N/A
Satisfy, maintain,
or improve
Yes(ii)
Yes
Scheduled
principal
Reinvestment not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment
not allowed
Credit risk
Satisfied
Sale proceeds or the
aggregate collateral
balance will at least
equal the
reinvestment target
par amount(i)
N/A
Satisfy, maintain,
or improve
Yes(ii)
Yes
Credit
improved(iii)
Satisfied
The aggregate
principal balance
will be maintained
or improved or will
at least equal the
reinvestment target
par amount(i)
N/A
Satisfy, maintain,
or improve
Yes(ii)
Yes
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Table 13
Summary Of Trading Conditions After Reinvestment Period (cont.)
New asset
minimum par
amount?
Standard &
Poor's CDO
Monitor test?
Collateral
quality tests and
concentration
limitations?
New asset with
New asset with the same or a
an equal or a
shorter
higher rating? maturity?
Type of trade
Overcollateralization
tests?
Defaulted
Reinvestment not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment
not allowed
Equity
Reinvestment not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment not
allowed
Reinvestment
not allowed
Reinvestment
not allowed
(i)The reinvestment target par amount equals $400 million minus any reduction in the aggregate principal amount of the outstanding notes plus
any principal proceeds from additional note issuance. (ii)Alternatively, if the original class A debt is no longer outstanding, the scenario default
rate for the senior-most class of notes outstanding is maintained or improved. (iii)Proceeds from the sale of credit-improved obligations can be
reinvested only if the original class A debt is no longer outstanding. CDO--collateralized debt obligation. N/A--not applicable.
Note Redemption
Optional redemption
On any business day after the non-call period, all classes of notes may be redeemed, in whole but not in part, at the
direction of more than 50% of the subordinated notes' aggregate principal amount.
Principal prepayment
If any coverage test is not satisfied on its calculation date, the secured notes will be paid according to the note
payment sequence until the applicable test is satisfied.
Tax redemption
If a tax event occurs, any class of secured notes may be redeemed, in whole but not in part, on any business day at the
written direction of more than 50% of the subordinated notes' aggregate principal amount.
Optional redemption by refinancing
On any business day after the non-call period, any class of secured notes may be redeemed, in whole but not in part,
through refinancing proceeds at the written direction of more than 50% of the subordinated notes' aggregate principal
amount.
Under the indenture, the issuer will obtain a refinancing only if the following conditions are met:
• The aggregate principal amount of the obligations providing the refinancing is equal to that of the secured notes
being redeemed.
• The spread over LIBOR of the obligations providing the refinancing does not exceed that of the secured notes being
redeemed.
• The sum of the refinancing proceeds, any further advances, the supplemental interest reserve account, and the
excess interest is sufficient to pay the redemption price of the secured notes being redeemed.
• The agreements relating to the refinancing contain limited recourse and nonpetition provisions that are equivalent
to those applicable to the notes being redeemed.
• The obligations providing the refinancing do not rank higher in priority of payments than the class of secured notes
being refinanced.
• The voting rights, consent rights, redemption rights, and all other rights of the obligations providing the refinancing
are the same as those of the secured notes being refinanced.
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• Standard & Poor's is notified of such refinancing.
• Any new notes issued regarding the refinancing will have the same stated maturity date as the secured notes being
refinanced.
• The refinancing is completed solely through the issuance of new notes and not the sale of any CDOs.
• The sum of any further advances, the supplemental interest reserve account, and the excess interest is at least equal
to the refinancing expenses.
• The sponsor would be in compliance with U.S. risk retention regulations
Re-pricing of notes
After the non-call period, at the direction of more than 50% of the subordinated notes' aggregate principal amount, the
issuer may reduce any class' spread over LIBOR other than the class A notes.
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, 2014
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
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• 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, 2009.
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.
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
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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.
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