CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to WhiteHorse IX, Ltd./LLC (WhiteHorse IX):
--$252,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C, D, E, F or subordinated notes.
WhiteHorse IX, Ltd. and WhiteHorse IX, LLC (together, WhiteHorse IX, or the issuer) is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by H.I.G. WhiteHorse Capital, LLC (H.I.G. WhiteHorse). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $400 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% 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 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 in line with that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, the class A notes are unlikely to be affected by the foreseeable level of defaults. The class A notes are robust against default rates of up to 65%.
Strong Recovery Expectations: The indicative portfolio consists of 96% first lien senior secured loans. Approximately 93% 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 76.2%. In determination of the class A notes 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 WhiteHorse IX class A notes assumed a 35.7% recovery rate 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. Fitch expects the class A 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 notes.
The sources of information used to assess these ratings were provided by the arranger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and the public domain.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly to investors on Fitch's website at 'www.fitchratings.com'.
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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' (July 25, 2014);
--'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