CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to Regatta III Funding Ltd./LLC (Regatta III):
--$244,500,000 class A-1A floating rate notes 'AAAsf'; Outlook Stable;
--$0 class A-1B floating rate notes 'AAAsf'; Outlook Stable;
--$50,000,000 class A-1 loans 'AAAsf'; Outlook Stable.
Regatta III Funding Ltd. (the issuer) and Regatta III Funding LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Napier Park Global Capital LLC (Napier Park). Net proceeds from the issuance of the notes and loans will be used to purchase a portfolio of approximately $475 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 38% for class A-1A and A-1B notes and the class A-1 loans (together, class A-1 debt), 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 debt is in line with the average for recent CLO issuances.
'B/B-' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is consistent with that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch Ratings' opinion, the class A-1 debt is unlikely to be affected by the foreseeable level of defaults. The class A-1 debt is robust against default rates of up to 59.2%.
Strong Recovery Expectations: The indicative portfolio consists of 98.2% first lien senior secured loans, 93.1% of which 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 debt is expected to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A-sf' and 'AAAsf' for the class A-1 debt.
The expected ratings are based on information provided to Fitch as of Feb. 25, 2014. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
The presale report is available to investors on Fitch's web site at www.fitchratings.com. For more information about Fitch's comprehensive subscription service FitchResearch, which includes all presale reports, surveillance and credit reports on more than 20 asset classes, contact product sales at +1-212-908-0800 or at 'firstname.lastname@example.org'.
Additional information is available at 'www.fitchratings.com'.
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. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013).
Applicable Criteria and Related Research: Regatta III Funding Ltd./LLC
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