NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to OZLM VI, Ltd./LLC (OZLM VI):
-- $375,000,000 class A-1 notes 'AAAsf'; Outlook Stable.
OZLM VI, Ltd. (the issuer) and OZLM VI, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Och-Ziff Loan Management LP (Och-Ziff). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $600 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37.5% for 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 notes 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 comparable to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are robust against default rates of up to 63%.
Strong Recovery Expectations: The indicative portfolio consists of 91.7% senior secured loans, of which about 88.7% 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.
Fitch 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 A-1 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and 'AAAsf'.
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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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
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds