NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to JFIN CLO 2014-II Ltd./LLC (JFIN 2014-II):
--$312,000,000 class A-1A senior secured floating rate notes, 'AAAsf'; Outlook Stable;
--$31,750,000 class A-1B senior secured fixed rate notes, 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2A, A-2B, B1, B2, C, D, E or subordinated notes.
JFIN 2014-II is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Jefferies Finance LLC (JFIN). A portion of net proceeds from the issuance of secured and subordinated notes will be used to repay parties that provided interim financing, allowing JFIN to purchase collateral prior to the closing date. The balance of net proceeds will be used to purchase assets to reach a target portfolio of approximately $550 million of primarily leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37.5% for class A-1 (together, class A-1A and A-1B) 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 63.8%.
Strong Recovery Expectations: The indicative portfolio consists of 98.6% first lien senior secured loans. Approximately 92.2% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher resulting in a base case recovery assumption of 76.8%. In determination of the class A-1 note rating, Fitch stressed the indicative portfolio by assuming a higher portfolio concentration of assets with lower recovery prospects and further reduced recovery assumptions for higher rating stress assumptions. The analysis of JFIN 2014-II, class A-1 notes assumed a 35.5% recovery rate in Fitch's 'AAAsf' scenario.
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.
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 A-1 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A-1 notes.
The sources of information used to assess these ratings were the transaction documents provided by the arranger, Citigroup Global Markets Inc., and the public domain.
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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 and Covered Bonds' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 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