OREANDA-NEWS. Fitch Ratings has affirmed the Long-term Issuer Default Rating (IDR) and secured debt rating of Corporate Capital Trust (CCT) at 'BB+'. The Rating Outlook is Stable.

These actions are being taken in conjunction with a broader industry review, which includes 10 business development companies (BDCs). For more commentary on the broader sector review, please see the release, Fitch Takes Several Negative Rating Actions Following BDC Peer Review, available at www.fitchratings.com.

KEY RATING DRIVERS

The rating affirmations reflect the strength of CCT's relationship with CNL Fund Advisors Company (CNL) and KKR Credit Advisors (US) LLC (KKR Credit), low leverage, relatively low portfolio concentrations, limited exposure to equity investments, and strong asset quality. CNL has demonstrated its ability to raise and administer capital in the retail market over a long period of time, while KKR Credit has a strong and established track record underwriting credit and has strong access to deal flow, given its affiliation with KKR & Co. L.P. (KKR, rated 'A' by Fitch).

Rating constraints include a limited operating history as a business development company (BDC), weaker-than-peer earnings yields, a fully secured funding profile, higher-than-average non-cash income, weaker relative earnings coverage of the dividend, and the potential that CCT will be unable to access the equity markets for capital following the expiration of issuing authority, likely in 2015, barring an accelerated liquidity event.

Leverage, as measured by debt to equity, amounted to 0.32(x) at Sept. 30, 2014, or 0.28x net of cash, which is well below the peer average. The firm's targeted leverage is 0.67x, but Fitch believes that it may be some time before that level is reached, given the current continuous stock offering structure. At Sept. 30, 2014, first and second lien senior debt accounted for 75.4% of the investment portfolio, which compares favorably to a rated peer average of 69.3%. Exposure to equity investments, which can experience meaningful valuation volatility, was relatively low, at 4.3%, with an additional 1.4% in structured products.

Asset quality trends have been strong since inception, supported, in part, by market conditions. CCT had its second non-accrual in 3Q14, which amounted to 0.23% of the portfolio at value, but Fitch believes credit metrics for CCT and the industry more broadly are at unsustainably low levels longer-term.

The investment portfolio was relatively more diverse than peers at Sept. 30, 2014, with the top ten investments accounting for 29.2% of assets and 37.3% of equity. Still, Fitch expects portfolio concentrations to increase modestly over time, as CCT transitions the portfolio away from broadly syndicated credit and into directly originated transactions. That said; CCT is likely to maintain a greater exposure to liquid credit than the peer group, as the firm co-invests alongside other KKR credit vehicles, including CLOs, in addition to its less liquid direct senior lending and mezzanine funds.

CCT's obligor exposure to the energy sector accounted for approximately 6.5% of its portfolio at Sept. 30, 2014, according to Fitch's calculations, which was below the peer average of 10.5%. Oil & gas exposure, more specifically, was also below the peer average of 7.1%, at 2.7% of the portfolio. Fitch conducted a stress test on the firm's exposure along with the rest of the peer group, and views the impact of valuation declines on the firm's leverage as negligible.

CCT's operating history is relatively short, having only recently completed four full years of investment operations. Net investment income (NII) has been on an upward trajectory given 189% portfolio growth in 2013, followed by an additional 17.6% portfolio growth in the first three quarters of 2014. NII more than doubled in 2014, although the NII yield on the portfolio remains below the peer average, given the lower revenue yield. CCT is expected to close that gap over time, with a greater focus on more illiquid credits.

CCT's funding profile is fully secured, consisting of two special purpose vehicles (SPVs), a corporate revolver, and a secured term loan. Borrowing capacity is more than \$1.4 billion, and \$581.6 million was outstanding at Sept. 30, 2014. The firm also has a \$500 million total return swap (TRS), which is used opportunistically to fund investments in the liquid markets. CCT's debt maturity profile improved in 2014, with the issuance of secured term debt and the renewal of CCT Funding, LLC. However, \$200 million of borrowing capacity matures in 364 days and the TRS matures in January 2016. Fitch expects CCT will look to extend its debt maturity profile over time and could access the unsecured markets to improve funding flexibility.

CCT's liquidity profile is considered sound with \$80.5 million of balance sheet cash, and \$846.4 million of availability on various secured funding facilities, subject to borrowing base requirements, at Sept 30, 2014. Additionally, cash flows from investment repayments and exits were significant in 2014, amounting to \$793.8 million through the first three quarters of 2014, and a meaningful portion of the portfolio was considered liquid, with about 49% of the portfolio considered level 2 for valuation purposes.

NII dividend coverage, which adjusts for non-cash incentive payment accruals and realized gains, was sound, amounting to 97.4% through 3Q14. However, coverage ratios fall significantly if non-cash income is removed from NII, as CCT has a meaningful amount of paid-in-kind income. Realizations of non-cash income, to date, have been limited, given the relatively short operating history of the BDC. Fitch would view an improvement in cash income coverage of the dividend favorably.

The Stable Outlook reflects Fitch's expectations for continued operating consistency, improved earnings yields, given the gradual shift into less-liquid direct originations, the maintenance of good asset quality, modest leverage, and improved dividend coverage.

That said, Fitch sees a number of emerging industry challenges that could pressure ratings, or at least increase rating differentiation amongst BDCs over a longer-term horizon. These challenges include increased competition, which is yielding tighter market spreads and looser underwriting terms, including higher underlying portfolio company leverage and weaker covenant packages. Should competition continue to intensify, market yields could decline further, which would reduce earnings generation and pressure dividend coverage for the space.

RATING SENSITIVITIES

Negative rating actions for CCT could be driven by an extended increase in leverage above the targeted range of approximately 0.67x (asset coverage of 250%), resulting from increased borrowings or material realized or unrealized depreciation, and/or a meaningful increase in the proportion of equity holdings without a commensurate decline in leverage. A spike in non-accrual levels, a continued increase in non-cash income, an inability to refinance near-term debt maturities, and weaker cash income dividend coverage would also be viewed unfavorably from a ratings perspective.

Positive rating momentum for CCT is viewed as limited over the near-term, particularly given the challenging market backdrop, but could develop over time with increased funding flexibility, including an extension of the debt maturity profile, access to the public unsecured debt markets, and the ability to issue public equity for growth capital. Other positive rating factors could include an improvement in net investment income yields, a continuation of solid asset quality performance, particularly given the competitive market environment, reduced non-cash income, and stronger cash earnings dividend coverage.

CCT is an externally managed business development company, organized in June 2010 and commencing investment operations in July 2011. As of Sept. 30, 2014, the company had investments in 111 portfolio companies amounting to approximately \$2.5 billion.

Fitch has affirmed the following with a Stable Outlook:

Corporate Capital Trust
--Long-term Issuer Default Rating at 'BB+';
--Secured Debt Rating at 'BB+'.