NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to LCM XVI Limited Partnership:
--$4,500,000 class X notes 'AAAsf'; Outlook Stable;
--$441,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, or E notes, or the LP certificates.
LCM XVI Limited Partnership (the issuer) and LCM XVI LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by LCM Asset Management LLC. Net proceeds from the issuance of the secured notes and limited partnership (LP) certificates will be used to purchase a portfolio of approximately $700 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 37.0% for the class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to the class A notes is slightly lower than the average CE of recent CLO issuances. Class X notes are expected to be paid in full from the application of interest proceeds via the interest waterfall.
'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 Ratings' opinion, class X and class A notes are unlikely to be affected by the foreseeable level of defaults. Class X and class A notes are projected to be able to withstand default rates of up to 100.0% and 60.6%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 94.3% first lien senior secured loans. Approximately 87.5% 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. Fitch expects the class X and class 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 A notes. The class X notes passed all sensitivity scenarios at a 'AAAsf' rating threshold.
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 +1-212-908-0800 or at 'firstname.lastname@example.org'.
Additional information is available at 'www.fitchratings.com'.
The sources of information used to assess these ratings were the transaction documents provided by the arranger, Deutsche Bank Securities Inc., 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);
--'LCM XVI Limited Partnership/LLC -- Appendix' (May 12, 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
LCM XVI Limited Partnership/LLC -- Appendix