Fitch Rates Magnetite XII, Ltd./LLC

CHICAGO--()--Fitch Ratings assigns the following rating to Magnetite XII, Ltd./LLC:

--$386,400,000 class A notes 'AAAsf'; Outlook Stable.

Fitch does not rate the class B, C, D, E and F notes or the subordinated securities.

TRANSACTION SUMMARY

Magnetite XII, Ltd. (the issuer) and Magnetite XII, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by BlackRock Financial Management, Inc. (BlackRock). Net proceeds from the issuance of the secured notes and subordinated securities will be used to purchase a portfolio of approximately $600 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a non-call period ending in October 2016.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 35.6% 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 lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.

'B+/B' Asset Quality: The average credit quality of the indicative portfolio is approximately '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 A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are projected to be able to withstand default rates of up to 59.6%.

Strong Recovery Expectations: The indicative portfolio consists of 93.7% first-lien loans. Approximately 89% of the indicative portfolio has strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher and the base case recovery assumption is 75%. In determining the class A 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 stresses resulting in a 36.5% 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.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, available at 'www.fitchratings.com'.

For more information about Fitch's comprehensive subscription service FitchResearch, which includes all presale reports, surveillance and credit reports on more than 20 asset classes, contact product sales at +1-212-908-0800 or at 'webmaster@fitchratings.com'.

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

Sources of information used to assess these ratings were provided by the arranger, Wells Fargo Securities, LLC, 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' (Dec. 19, 2014);

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

Applicable Criteria and Related Research:

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981233

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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
John Um, CFA
Director
+1 212-908-0287
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 Analyst
Robert Rhein
Director
+1 312-606-2314
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
John Um, CFA
Director
+1 212-908-0287
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