CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to Sound Point CLO V, Ltd./Inc. (Sound Point V):
--$4,000,000 class X notes 'AAAsf'; Outlook Stable;
--$390,000,000 class A notes 'AAAsf'; Outlook Stable.
Sound Point CLO V, Ltd. and Sound Point CLO V, Inc. (together, Sound Point V, or the issuer) is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Sound Point Capital Management, LP (Sound Point). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $600 million of primarily 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 notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an 'AAAsf' stress scenario. 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 slightly above 'B', which represents slightly higher credit quality than most recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, class X and A notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes display projected performance robust against default rates of up to 68.6% and 62.6%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 100% senior secured loans, 97.4% of which have strong recovery prospects or a Fitch Ratings-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 and collateral quality tests addressing various loan and structural characteristics. The concentration limitations and collateral quality test levels presented to date are within the range of limits set in the majority of recent CLOs. Fitch assessed the impact of the most prominent risk-presenting concentration allowances and targeted test levels in its analysis.
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. Fitch expects the class X and A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf' for the class X and A notes.
The expected ratings are based on information provided to Fitch as of March 24, 2014. Sources of information used to assess these ratings were provided by the arranger, Morgan Stanley & Co. LLC, and the public domain. 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: Sound Point CLO V, Ltd./Inc.
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