NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to ALM VIII, Ltd./LLC (ALM VIII):
--$270,000,000 class A-1a senior secured floating rate notes, 'AAAsf'; Outlook Stable;
--$120,000,000 class A-1b senior secured floating rate notes, 'AAAsf'; Outlook Stable;
ALM VIII is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Apollo Credit Management (CLO), LLC (Apollo Credit). A portion of the net proceeds from the issuance of notes will be used to repay parties that provided interim financing allowing the issuer to purchase collateral prior to the closing date. The remainder of net proceeds from the issuance of notes will be used to purchase assets to reach a target portfolio of $600 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35% for class A-1a and A-1b (together, class A-1) notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The level of CE for class A-1 is below the average for recent CLO issuances.
'B/B-' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch Ratings' opinion, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. The class A-1 notes are robust against default rates of up to 59.8%.
Strong Recovery Expectations: The indicative portfolio consists of 95.5% senior secured loans, of which approximately 88.4% have strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher. This is in line with the seniority profile of recent vintage CLOs.
Consistent Portfolio Parameters: The portfolio will be actively managed and bound by concentration limitations addressing various loan characteristics. The concentration limitations presented to date are within the range of limits set in the majority of recent CLOs. Fitch addressed the impact of the most prominent risk-presenting concentration allowances.
In addition to Fitch's stated criteria, the agency analyzed the structure's sensitivity to the potential variability of key model assumptions including decreases in weighted average spread or recovery rates and increases in default rates or correlation. The class A-1 notes are expected to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'BBB+sf' and 'AAAsf' for class A-1.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly to investors on Fitch's website at 'www.fitchratings.com'.
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Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess these ratings were provided by the arranger, Wells Fargo Securities, LLC, and the public domain.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds