CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to Magnetite IX, Limited/LLC:
--$256,000,000 class A-1 notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2, B, C, D, or E notes or the subordinated notes.
Magnetite IX, Limited (the issuer) and Magnetite IX LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by BlackRock Financial Management, Inc. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $400 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for the class A-1 notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an 'AAAsf' stress scenario. The degree of CE available to the class A-1 notes is lower than the average CE of recent CLO issuances but cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.
'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, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. The class A-1 notes are projected to be able to withstand default rates of up to 61.5%.
Strong Recovery Expectations: The indicative portfolio consists of 94.8% first lien senior secured loans. Approximately 91.9% 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 75.2%. 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 Magnetite IX, class A-1 notes assumed a 36.6% recovery rate in Fitch's 'AAAsf' scenario.
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 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.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, available at 'www.fitchratings.com'.
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Sources of information used to assess these ratings were provided by the arranger, Citigroup Global Markets 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).
Applicable Criteria and Related Research: Magnetite IX, Limited/LLC
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