Fitch Affirms Hildene CLO I, Ltd./LLC

NEW YORK--()--Fitch Ratings has affirmed the class A notes issued by Hildene CLO I, Ltd./LLC (Hildene I) at 'AAAsf'. The Rating Outlook remains Stable.

KEY RATING DRIVERS

The affirmation is based on the stable performance of the underlying portfolio since the transaction's inception in January 2014 and the sufficient credit enhancement available to the notes. As of the Oct. 31, 2014 trustee report, the transaction continues to pass all coverage tests and collateral quality tests, and there have been no defaults in the underlying portfolio to date.

The loan portfolio par amount plus principal cash is approximately $302.5 million, compared to the effective date target balance of $300 million. The current weighted average spread (WAS) is 4.4%, versus a minimum WAS trigger of 4%, as reported by the trustee. Additionally, the weighted average rating factor remains unchanged at 'B/B-' since the closing date. No assets are rated in the 'CCC' category versus 1.3% in the indicative portfolio at closing, based on Fitch's Issuer Default Rating (IDR) Equivalency Map. Currently, 84.8% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.

The Stable Outlook reflects the expectation that the class A notes have sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio (based on the results of the Fitch sensitivity analysis described below).

RATING SENSITIVITIES

The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', portions of the portfolio being placed on Rating Watch Negative, breaches of concentration limitations or portfolio quality covenants, and overcollateralization (OC) or interest coverage (IC) test breaches. Fitch conducted rating sensitivity analysis on the closing date of Hildene I, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.

Hildene I is an arbitrage, cash flow collateralized loan obligation (CLO) managed by Hildene Leveraged Credit, LLC. The transaction remains in its reinvestment period, which is scheduled to end in January 2018. During the reinvestment period, discretionary sales are permitted at any time and are limited to 25% of the portfolio balance, as measured at the beginning of the preceding 12-month period. The manager also has the ability to reinvest unscheduled principal proceeds and sales proceeds from the disposal of credit risk obligations after the reinvestment period, subject to certain conditions.

This review was conducted under the framework described in the report 'Global Rating Criteria for Corporate CDOs' using the Portfolio Credit Model (PCM) for projecting future default and recovery levels for the underlying portfolio. Given the stable performance of the deal since closing in January 2014, no cash flow modeling was conducted. The current portfolio's 'AAAsf' Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 51% and 36.7%, respectively, versus an RDR of 51.8% and RRR of 37.5% for the indicative portfolio at closing.

Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on Jul. 23, 2014. A comparison of the transaction's Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is also available by accessing the reports and links indicated below.

Fitch has affirmed the following rating:

--$187,500,000 class A notes at 'AAAsf'; Outlook Stable.

Fitch does not rate the class B-1, B-2, C, D, E, F, and subordinated notes.

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

The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, 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);

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

--'Hildene CLO I Ltd./LLC New Issue Report' (July 23, 2014);

--'Hildene CLO I Ltd./LLC -- Appendix' (July 23, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

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

Global Rating Criteria for Corporate CDOs

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

Counterparty Criteria for Structured Finance and Covered Bonds

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

Hildene CLO I Ltd./LLC

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=737455

Hildene CLO I Ltd./LLC -- Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=745935

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=958237

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 Surveillance Analyst
Emmett O'Brien
Analyst
+1-212-908-1648
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson
Alina Pak, CFA
Senior Director
+1-312-368-3184
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Surveillance Analyst
Emmett O'Brien
Analyst
+1-212-908-1648
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Committee Chairperson
Alina Pak, CFA
Senior Director
+1-312-368-3184
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com