NEW DELHI & SYDNEY & SINGAPORE--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating to Avery Point IV CLO, Limited/Corp. (Avery Point IV):
--$4,000,000 class X senior floating rate notes 'AAAsf'; Outlook Stable;
--$427,000,000 class A senior secured floating rate notes 'AAAsf'; Outlook Stable.
Avery Point IV CLO, Limited (issuer) and Avery Point IV CLO, Corp. (co-issuer, and together, Avery Point IV) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Sankaty Advisors, LLC (Sankaty). Net proceeds will be used to purchase assets to reach a target portfolio of approximately $700 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 39% for class A 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 notes is above the average for recent CLO issuances. Class X notes are expected to be paid in full from interest proceeds within one year of close.
'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 and A notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes are robust against default rates of up to 100% and 66.1%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 98% senior secured loans, of which about 93.4% have strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher. This is in line with the seniority profile of recently issued CLO transactions.
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 X notes are expected to remain 'AAAsf', and the class A notes are 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 notes.
The expected ratings are based on information provided to Fitch by Morgan Stanley & Co. LLC as of March 19, 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 'email@example.com'.
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: Avery Point IV CLO, Limited/Corp. (US Structured Credit)
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