Fitch Rates Halcyon Loan Advisors Funding 2014-1 Ltd./LLC

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to Halcyon Loan Advisors Funding 2014-1 Ltd./LLC (Halcyon 2014-1):

--$2,250,000 class X senior secured floating rate notes 'AAAsf'; Outlook Stable;

--$199,000,000 class A-1 senior secured floating rate notes 'AAAsf'; Outlook Stable;

--$0 class A-2 senior secured floating rate notes 'AAAsf'; Outlook Stable;

--$50,000,000 class A loans 'AAAsf'; Outlook Stable.

TRANSACTION SUMMARY

Halcyon 2014-1 is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Halcyon Loan Advisors 2014-1 LLC (Halcyon, a wholly owned subsidiary of Halcyon Loan Management, LLC). Net proceeds from the issuance of the secured notes and class A loan (together, the secured debt or debt) and subordinated notes will be used to purchase a portfolio of approximately $400 million of primarily leveraged loans. The CLO will have a four-year reinvestment period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 37.8% for class A-1 and A-2 notes and class A loans (together, class A 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 debt is in line with the average for recent CLO issuances. Class X notes are ultimately expected to be paid in full from the application of interest proceeds via the interest waterfall.

'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's opinion, class X notes and class A debt are unlikely to be affected by the foreseeable level of defaults. Class X notes and class A debt are robust against default rates of up to 85.5% and 63.8%, respectively.

Strong Recovery Expectations: The indicative portfolio consists of 98.4% senior secured loans, of which about 95.9% 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.

RATING SENSITIVITIES

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 X notes are expected to remain 'AAAsf', and the class A debt are expected to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and 'AAAsf' for the class A-1 debt.

The sources of information used to assess these ratings were the transaction documents provided by the arranger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and the public domain.

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.

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 [phone] or at '[e-mail]'.

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:

Global Structured Finance Rating Criteria

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

Global Rating Criteria for Corporate CDOs

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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822813

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