CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to Symphony CLO XV, Ltd./LLC:
--$3,000,000 class X notes 'AAAsf'; Outlook Stable;
--$378,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C, D, E or F notes or the subordinated notes.
Symphony CLO XV, Ltd. (the issuer) and Symphony CLO XV LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Symphony Asset Management LLC (Symphony). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $600 million of primarily senior secured leveraged loans.
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 an '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 a highly speculative credit quality; however, in Fitch's opinion, 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 87.5% and 62.8%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 93.0% first lien senior secured loans. Approximately 82.3% 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 71.1%. In determining 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 of higher rating stress assumptions. The analysis of Symphony CLO XV class X and class A notes assumed a 35.4% recovery rate in Fitch's 'AAAsf' scenario.
Fitch evaluated 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 X and class A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA+sf' and 'AAAsf' for the class X notes and between 'Asf' and 'AAAsf' for the class A notes.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, available at 'www.fitchratings.com'.
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Sources of information used to assess these ratings were provided by the arranger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and the public domain.
Applicable Criteria and 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: Symphony CLO XV, Ltd./LLC
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