NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to Avery Point V CLO, Limited/Corp. (Avery Point V):
--$2,000,000 class X notes 'AAAsf'; Outlook Stable;
--$152,000,000 class A notes 'AAAsf'; Outlook Stable;
--$100,000,000 class A loans 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D, E, F or subordinated notes.
Avery Point V is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Sankaty Advisors, LLC. Net proceeds will be used to purchase assets to reach a target portfolio of approximately $400 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37% for class A notes and A loans (together, class A debt), 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 debt is in line with 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 debt are unlikely to be affected by the foreseeable level of defaults. Class X and A debt are robust against default rates of up to 100% and 62.7%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 97.1% senior secured loans, of which about 96% 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 eligibility criteria, or 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 debt are expected 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 debt.
The expected ratings are based on information provided to Fitch by the arranger, GreensLedge Capital Markets LLC, as of June 27, 2014. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
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Applicable Criteria & 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' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).
Applicable Criteria and Related Research: Avery Point V CLO,
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds
Global Structured Finance Rating Criteria