CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to ECP CLO 2014-6, Ltd./LLC (ECP CLO 2014-6):
--$516,700,000 class A-1a notes 'AAAsf'; Outlook Stable;
--$29,000,000 class A-1b notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-2, B, C, D-1, D-2, E, or subordinated notes.
ECP CLO 2014-6, Ltd. (the issuer) and ECP CLO 2014-6 LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Silvermine Capital Management (Silvermine). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately $850 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.8% for class A-1a and A-1b (collectively the 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 level of CE for class A-1 notes is below the average for recent CLO issuances.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is slightly better than that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, class A-1 notes are unlikely to be affected by the foreseeable level of defaults. The class A-1 notes are robust against default rates of up to 60.7%.
Strong Recovery Expectations: The indicative portfolio consists of 94.3% first lien senior secured loans. Approximately 91.3% 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 74.8%. 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 ECP 2014-6 class A-1 notes assumed a 36.7% 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-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.
The expected ratings are based on information provided to Fitch as of Aug. 26, 2014. Sources of information used to assess these ratings were provided by the arranger, Citigroup Global Markets Inc., and the public domain. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
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Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 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: ECP CLO 2014-6, 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
Counterparty Criteria for Structured Finance and Covered Bonds