NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to CIFC Funding 2014-IV, Ltd./LLC (CIFC Funding 2014-IV):
-- $4,000,000 class X senior secured floating rate notes, 'AAAsf'; Outlook Stable;
-- $378,000,000 class A senior secured floating rate notes, 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D, E, F or subordinated notes.
CIFC Funding 2014-IV, Ltd. and CIFC Funding 2014-IV, LLC (together, CIFC Funding 2014-IV, or the issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by CIFC Asset Management LLC (CIFC). Net proceeds from the issuance of secured and subordinated notes will be used to purchase a portfolio of approximately $600 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 37.0% 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 degree of CE available to class A notes is in line with the average CE of recent CLO issuances. Class X notes are expected to be paid in full from the application of interest proceeds via the interest waterfall.
'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 X and class A notes are unlikely to be affected by the foreseeable level of defaults. Class X and class A notes are projected to be able to withstand default rates of up to 61.5% and 60.7%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 97.6% first lien senior secured loans. Approximately 94.3% 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 76.3%. In determination of the class X and A note ratings, 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 CIFC 2014-IV class X and class A notes assumed a 35.5% 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. The class X and class A 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 both the class X and class A notes.
The expected ratings are based on information provided to Fitch by the arranger, Morgan Stanley & Co., LLC as of August 1, 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 'firstname.lastname@example.org'.
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' (Jan. 23, 2014);
-- 'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
-- 'CIFC Funding 2014-IV, Ltd./LLC -- Appendix'.
Applicable Criteria and Related Research: CIFC Funding 2014-IV, Ltd./LLC
(US STRUCTURED CREDIT)
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