CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following rating and Outlook to Vibrant CLO III, Ltd./LLC (Vibrant III):
-- $249,000,000 class A-1 notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2, B, C, D or subordinated notes.
Vibrant CLO III, Ltd. (the issuer) and Vibrant CLO III, LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by DFG Investment Advisers, Inc. (DFG). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately $400 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37.8% for class A-1, 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 the class A-1 notes is above the average for recent CLO issuances.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is above average compared to that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch Ratings' opinion, the 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 63.5%.
Strong Recovery Expectations: The indicative portfolio consists of 95.1% first-lien senior-secured loans, 88.9% of which have strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, resulting in a base case recovery assumption of 75.3%. In determining the class A-1 notes' rating, Fitch stressed the indicative portfolio by assuming a higher portfolio concentration of assets with lower recovery prospects. Fitch also reduced recovery assumptions further for higher rating stress assumptions. The analysis of Vibrant III class A-1 notes assumed a 37.5% recovery rate in Fitch's 'AAAsf' scenario.
In addition to its stated criteria, Fitch 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.
Sources of information used to assess these ratings were provided by the arranger, BNP Paribas Securities Corp., and the public domain.
Key Rating Drivers and Rating Sensitivities are further detailed in the accompanying new issue report, which will be available shortly to investors at 'www.fitchratings.com'.
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' (Dec. 19, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).
Applicable Criteria and Related Research:
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