Fitch to Rate ALM XI, Ltd./LLC; Presale Issued

NEW YORK--()--Fitch Ratings expects to assign the following ratings to ALM XI, Ltd./LLC (ALM XI):

--$348,750,000 class A-1 floating rate notes 'AAAsf'; Outlook Stable.

Fitch does not expect to rate the class A-2a, A-2b, B, C, D or subordinated notes.

TRANSACTION SUMMARY

ALM XI, Ltd. and ALM XI, LLC (together, ALM XI, or the issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Apollo Credit Management (CLO), LLC (Apollo Credit). Net proceeds from the issuance of the notes and subordinated notes will be used to purchase assets to reach a target portfolio of approximately $550 million of primarily senior secured 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 36.6% 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 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, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults; the notes are robust against default rates of up to 62.5%.

Strong Recovery Expectations: The indicative portfolio consists of 98.5% first lien senior secured loans. Approximately 93.7% 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 77.2%. In determining 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 ALM XI, class A-1 notes, assumed a 35.6% 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.

RATING SENSITIVITIES

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 A-1 notes are expected 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 expected ratings are based on information provided to Fitch by the arranger, Credit Suisse Securities (USA) LLC as of July 31, 2014. 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 FitchResearch, 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 webmaster@fitchratings.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' (Jan. 23, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);

Applicable Criteria and Related Research: ALM XI, Ltd./LLC (US Structured Credit)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753347

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

Global Rating Criteria for Corporate CDOs - Effective from 8 August 2013 to 25 July 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715492

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725537

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=843299

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings, Inc.
Primary Analyst
Barbara M. Burdzy, +1-212-908-0813
Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Alina Pak, +1-312-368-3184
Senior Director
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations
Sandro Scenga, New York
+1-212-908-0278
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings, Inc.
Primary Analyst
Barbara M. Burdzy, +1-212-908-0813
Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Alina Pak, +1-312-368-3184
Senior Director
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations
Sandro Scenga, New York
+1-212-908-0278
sandro.scenga@fitchratings.com