NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to ICG US CLO 2014-2, Ltd./LLC (ICG 2014-2):
--$3,000,000 class X senior term notes 'AAAsf'; Outlook Stable;
--$247,000,000 class A senior term notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D-1, D-2, E, F or subordinated notes.
ICG 2014-2 is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by ICG Debt Advisors LLC. A portion of net proceeds from the issuance of the notes will be used to repay parties that provided interim financing, allowing the issuer to purchase collateral prior to the closing date. The remainder of 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 4.1 year reinvestment period ending in October 2018.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 38.3% for class A 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 notes is above the average for recent CLO issuances. Class X notes are expected to be paid in full from interest proceeds within one year of closing.
'B' Asset Quality: The average credit quality of the indicative portfolio is '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 notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes are each robust against default rates of up to 58.8%.
Strong Recovery Expectations: The indicative portfolio consists of 97.5% senior secured loans. Approximately 94.1% of the indicative portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher and the base case recovery assumption is 77.9%. In determining ratings for class X and A notes, 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 stresses resulting in a 36.1% recovery rate assumption in Fitch's 'AAAsf' scenario.
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 and A notes are expected to remain investment grade even under the most extreme sensitivity scenarios; results ranged between 'BBB+sf' and 'AAAsf' for both classes of notes.
The expected ratings are based on information provided to Fitch by the arranger, Morgan Stanley & Co. LLC, as of July 18, 2014, and the public domain. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
The presale report is available to investors on Fitch's web site at www.fitchratings.com. For more information about Fitch's comprehensive subscription service Fitch Research, 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 'email@example.com'.
Additional information is available at 'www.fitchratings.com'.
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: ICG US CLO 2014-2, Ltd./LLC
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