Fitch Affirms 7 Classes of Emporia Preferred Funding III, Ltd./Corp.

Fitch Ratings has affirmed seven classes of notes issued by Emporia Preferred Funding III, Ltd./Corp. (Emporia III) as follows:

-- $85,526,768 class A-1 notes at 'AAAsf'; Outlook Stable;

-- $34,210,707 class A-2 notes at 'AAAsf'; Outlook Stable;

-- $113,391,389 class A-3 notes at 'AAAsf'; Outlook Stable;

-- $26,845,000 class B notes at 'AAsf'; Outlook Stable;

-- $37,170,000 class C notes at 'Asf'; Outlook Stable;

-- $20,650,000 class D notes at 'BBsf'; Outlook Positive;

-- $18,585,000 class E notes at 'Bsf'; Outlook Positive.

KEY RATING DRIVERS

The rating actions are based on the stable performance of the underlying portfolio since the transaction's last rating action in January 2013. Following the end of the reinvestment period in April 2013, the transaction began receiving principal proceeds from the amortization of the portfolio, paying down approximately $39.5 million of the class A-1, A-2 and A-3 notes (collectively, the class A notes). As of the Dec. 2, 2013 trustee report, the transaction continues to have ample cushion in all its overcollateralization (OC) and interest coverage (IC) tests.

Fitch currently considers 4.5% of the portfolio to be rated 'CCC+' or below in the performing portfolio versus 6.2% at the last review, and the weighted average rating factor of the performing portfolio has remained at 'B/B-'. According to the trustee report, there are three defaulted obligors in the portfolio totaling approximately $2.7 million and the current weighted average spread (WAS) is 4.2%, compared to a trigger of 3.9%. The weighted average life (WAL) of the portfolio remained relatively unchanged at 4.2 years from 4.3 years in the last review, resulting in a longer risk horizon for the transaction this year than in last year's review. Additionally, Fitch's analysis focused on a performing portfolio balance of $331.9 million held across 96 borrowers and $21.5 million in principal collections.

RATING SENSITIVITIES

The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', or portions of the portfolio being placed on Rating Watch Negative or assigned a Negative Outlook, OC or IC test breaches.

Emporia III is a cash flow collateralized loan obligation (CLO) that closed on March 15, 2007 and is managed by Ivy Hill Asset Management, a portfolio management company of Ares Capital Corporation. Emporia III has a revolving portfolio primarily composed of U.S. middle market loans, approximately 94.8% of which are senior secured positions and approximately 5.2% of which are second lien loans and structured finance assets. The transaction exited its reinvestment period in April 2013.

This review was conducted under the framework described in the report 'Global Rating Criteria for Corporate CDOs' using the Portfolio Credit Model (PCM) for projecting future default and recovery levels for the underlying portfolio. These default and recovery levels were then used in Fitch's cash flow model under various default timing and interest rate stress scenarios.

While Fitch's cash flow analysis indicates higher passing rating levels for the class D notes in 11 of the 12 interest rate and default timing scenarios, the current recommended ratings appropriately reflect the risk profile of the remaining portfolio. The class D and E notes remain subordinate to more senior classes and are the most susceptible to portfolio concentration risks, especially when the WAL of the portfolio remains relatively unchanged over time.

Additional information is available at 'www.fitchratings.com'.

The information used to assess these ratings was sourced from the asset manager, periodic servicer reports, and the public domain.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 24, 2013);

--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013).

Applicable Criteria and Related Research:

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715492

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=813282

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