Overview
- Following our performance review of Cavendish Square Funding, we raised our rating on the class C notes.
- Cavendish Square Funding is a cash flow mezzanine structured finance CDO of a portfolio that comprises predominantly mortgage-backed securities.
LONDON (S&P Global Ratings) July 26, 2022--S&P Global Ratings today raised to 'A+ (sf)' from 'BBB+ (sf)' its credit rating on Cavendish Square Funding PLC's class C notes.
Today's upgrade follows our analysis of the transaction using data from the May trustee report, and the application of our relevant criteria (see "Related Criteria").
The class C notes have amortized and only 34% of their initial size remains outstanding (see "Related Research"). As a result, this class of notes benefitted from an increase in their credit enhancement. At the same time, it continues to pay timely interest.
Although 'CCC' category rated assets ('CCC+', 'CCC', and 'CCC-') and defaulted assets ('CC', 'SD', and 'D') have decreased in notional terms and some of the underlying investment grade assets in the portfolio (assets rated above 'BB+') have been upgraded, the portfolio's average credit quality has remained stable due to deleveraging. The portion of performing assets not rated by S&P Global Ratings is 27%. In accordance with our rating framework, we have treated the excess above 15% as rated 'CCC-'.
The credit risk concentration in the portfolio is also relatively high and has increased since our previous review, mainly driven by:
- Almost 23% of the portfolio is rated in the 'CCC' category;
- 35% of the assets the portfolio are defaulted with zero recovery;
- 97% of the portfolio is exposed to one single industry (RMBS); and
- More than 50% of the assets in the portfolio are domiciled in Spain, which is more than double the allowable limit under our sovereign risk criteria (see "Related Criteria").
For this review, we analyzed the portfolio in line with our global CDO criteria, and have also followed our "Surveillance Process For Monitoring U.S. Cash Flow CLO Transactions," published on Oct. 19, 2016. In our analysis, we assessed if the weighted-average spread (WAS) on the deleveraging pool is commensurate with a higher rating on the notes.
Our analysis also considers the portfolio's static nature (i.e., under the transaction documents and following discussions with the collateral manager, we concluded that no reinvestments are allowed in this transaction).
The class C notes benefit from about 92% of credit enhancement and only €3.10 million of the initial balance remains outstanding. There is €0.17 million standing on the principial account ahead of the August 2022 payment date. Consequently, the cash flows for the class C notes pass at the 'A+ (sf)' rating level, along with all supplemental test passing at the 'AAA (sf)' rating level. We therefore raised to 'A+ (sf)' from 'BBB+ (sf)' our rating on this class of notes.
Counterparty, operational, and legal risks are adequately mitigated in line with our criteria (see "Related Criteria").
Cavendish Square Funding is a cash flow mezzanine structured finance CDO of a portfolio that comprises predominantly mortgage-backed securities. The transaction closed in February 2006 and AE Global Investment Solutions Ltd. manages it.
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- Criteria | Structured Finance | CDOs: Mapping A Third Party's Internal Credit Scoring System To S&P Global Ratings' Global Rating Scale, May 8, 2014
- General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- Criteria | Structured Finance | CDOs: Global CDOs Of Pooled Structured Finance Assets: Methodology And Assumptions, Feb. 21, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- Criteria | Structured Finance | CDOs: Surveillance Methodology For Global Cash Flow And Hybrid CDOs Subject To Acceleration Or Liquidation After An EOD, Sept. 2, 2009
Related Research
- Cavendish Square Funding Cash Flow CDO Of ABS’ Class B Notes Raised Following Performance Review; Class C Notes Affirmed, July 26, 2021,
- 2017 EMEA Structured Credit Scenario And Sensitivity Analysis, July 6, 2017
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- Surveillance Process For Monitoring U.S. Cash Flow CLO Transactions, Oct. 19, 2016
- New Issue: Cavendish Square Funding PLC, Feb. 13, 2006
Primary Credit Analyst: | Shubham Verma, London (44) 20-7176-0858; Shubham.Verma@spglobal.com |
Secondary Contact: | Emanuele Tamburrano, London + 44 20 7176 3825; emanuele.tamburrano@spglobal.com |
Research Contributor: | Sukhmani Kohli, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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