CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to Crown Point CLO III, Ltd./LLC:
--$200,600,000 class A-1a notes 'AAAsf'; Outlook Stable;
--$50,000,000 class A-1b notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-2, B, C-1, C-2 or D notes or the subordinated notes.
Crown Point CLO III, Ltd. (the issuer) and Crown Point CLO III, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Valcour Capital Management LLC (Valcour). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $400 million of primarily senior secured leveraged loans. The CLO's reinvestment period and noncall period are expected to last approximately 4.4 years and 2.5 years, respectively.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37.4% for the class A-1a and class A-1b (collectively, class A-1) notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to the class A-1 notes is slightly higher than the average CE of recent CLO issuances, and cash flow modeling indicates performance in line with other 'AAAsf' CLO notes.
'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 A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 62.2%.
Strong Recovery Expectations: The indicative portfolio consists of 96.5% first lien senior secured loans. Approximately 93.5% 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 76.6%. In determining the class A-1 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 stress assumptions. The analysis of the class A-1 notes assumed a 35.7% recovery rate in Fitch's 'AAAsf' scenario.
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-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.
The expected ratings are based on information provided to Fitch as of March 25, 2015. Sources of information used to assess these ratings were provided by the arranger (Natixis Securities Americas LLC) and the public domain. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
The presale report is available to investors on Fitch's web site 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 'firstname.lastname@example.org'.
Additional information is available at 'www.fitchratings.com'.
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: Crown Point CLO III, Ltd./LLC (US Structured Credit)
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