NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to West CLO 2014-1 Ltd./LLC:
--$292,500,000 class A-1 senior secured floating rate notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2, B, C, D notes or the subordinated notes.
West CLO 2014-1 Ltd. and West CLO 2014-1 (together, West CLO 2014-1) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Allianz Global Investors U.S. LLC (Allianz). Net proceeds from the issuance of secured and subordinated notes will be used to purchase as a portfolio of approximately $450 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 35.0% for class A-1 notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The degree of CE available to the class A-1 notes is lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.
'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 Ratings' 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 61.2%.
Strong Recovery Expectations: The indicative portfolio consists of 99.3% first lien senior secured loans. Approximately 92.1% 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 77.1%. 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 West CLO 2014-1, class A-1 notes assumed a 36.4% 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.
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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Additional information is available at 'www.fitchratings.com'.
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: West CLO 2014-1 Ltd./LLC
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
Global Structured Finance Rating Criteria