CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to Kingsland VII:
--$297,000,000 class A notes 'AAAsf'; Outlook Stable;
--$48,500,000 class B notes 'AAsf'; Outlook Stable;
--$21,500,000 class C notes 'Asf'; Outlook Stable;
--$17,750,000 class D notes 'BBBsf'; Outlook Stable;
--$21,500,000 class E notes 'BBsf'; Outlook Stable.
Fitch does not rate the subordinated notes.
Kingsland VII (the issuer) and Kingsland VII LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Kingsland Capital Management LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $472 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) available to the notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the respective rating stress scenarios. The degree of CE available to the class A notes is slightly below the average CE of notes with the same priority in recent CLO issuances. The degree of CE for the class B, C, D, and E notes are all above the average CE of notes in the same respective rating categories in recent CLO issuances.
'B' Asset Quality: The average credit quality of the indicative portfolio is approximately 'B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, each class of rated notes is projected to be sufficiently robust against default rates commensurate with its applicable rating stress.
Strong Recovery Expectations: The indicative portfolio consists of 97% first lien senior secured loans. Approximately 91.5% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher.
Consistent Portfolio Parameters: The concentration limitations and collateral quality test levels 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 the Fitch stressed portfolio analysis.
Fitch evaluated 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 notes are expected to remain investment grade, while classes B, C, D, and E are generally expected to remain within two rating categories of their assigned ratings, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A notes, between 'BB+sf' and 'AAAsf' for the class B notes, between 'BBsf' and 'AA+sf' for the class C notes, between 'Bsf' and 'AA+sf' for the class D notes, and between a level below 'CCCsf' and 'A+sf' for the class E notes. Fitch views the results of these scenarios as consistent with the assigned ratings.
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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The sources of information used to assess these ratings were the transaction documents provided by the arranger, GreensLedge Capital Markets LLC, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'Kingsland VII -- Appendix' (June 4, 2014).
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 and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds
Kingsland VII -- Appendix