Fitch to Rate MCF CLO IV LLC; Issues Presale

CHICAGO--()--Fitch Ratings expects to assign the following rating and Rating Outlook to MCF CLO IV LLC:

--$228,500,000 class A notes 'AAAsf'; Outlook Stable.

Fitch does not expect to rate the class B, C, D or E notes, or the equity interests.

TRANSACTION SUMMARY

MCF CLO IV LLC (the issuer) is a middle-market (MM) collateralized loan obligation (CLO) that will be managed by MCF Capital Management LLC (MCF). Net proceeds from the issuance of the secured notes and equity interests will be used to purchase a portfolio of approximately $400 million of senior secured MM corporate 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 42.9% for class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. CE is significantly higher than the levels typically seen on broadly syndicated CLOs.

'B/B-' Asset Quality: Fitch expects the credit quality of the underlying obligors to primarily fall in the 'B/B-' range. Fitch analyzed a portfolio with a weighted average rating factor (WARF) of 44, which represents a portfolio in which the permitted 'CCC' bucket is maximized with nearly all other assets having 'B-' ratings - a scenario Fitch views as unlikely. The analysis on such portfolio indicated the class A notes demonstrating cash flow performance in line with other 'AAAsf' CLO notes. Class A notes are projected to be able to withstand default rates of up to 78.3%.

Strong Recovery Expectations: The transaction only permits investment in first lien senior secured loans. Approximately 83% 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 determining the class A note rating, Fitch reduced the weighted average recovery rating (WARR) of the portfolio to reach the minimum trigger as represented by the arranger, and further reduced recovery assumptions for higher rating stress scenarios. The analysis of MCF CLO IV class A notes assumed a 38.1% recovery rate in Fitch's 'AAAsf' scenario.

RATING SENSITIVITIES

Fitch evaluated the structure's sensitivity to the potential variability of key model assumptions, including decreases in 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 expected ratings are based on information provided to Fitch as of Oct. 15, 2014. Sources of information used to assess these ratings were provided by the arranger, Wells Fargo Securities, LLC, MCF, and the public domain.

Key Rating Drivers and Rating Sensitivities are further detailed in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

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: MCF CLO IV LLC

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=794008

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Counterparty Criteria for Structured Finance and Covered Bonds

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

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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=898874

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
Primary Analyst
Robert Rhein
Director
+1 312-606-2314
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Joseph Farfsing
Associate Director
+1 312-368-3346
or
Committee Chairperson
Derek Miller
Senior Director
+1 312-368-2076
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Robert Rhein
Director
+1 312-606-2314
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Joseph Farfsing
Associate Director
+1 312-368-3346
or
Committee Chairperson
Derek Miller
Senior Director
+1 312-368-2076
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com