Fitch Rates Sound Point CLO VIII, Ltd./Inc.; Issues New Issue Report

CHICAGO--()--Fitch Ratings assigns the following rating to Sound Point CLO VIII, Ltd./Inc.:

--$4,000,000 class X notes 'AAAsf'; Outlook Stable;

--$340,000,000 class A notes 'AAAsf'; Outlook Stable;

--$50,000,000 class A loans 'AAAsf'; Outlook Stable;

--$0 class A-L notes 'AAAsf'; Outlook Stable.

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

TRANSACTION SUMMARY

Sound Point CLO VIII, Ltd. and Sound Point CLO VIII, Inc. (together, Sound Point CLO VIII) comprise an arbitrage cash flow collateralized loan obligation (CLO) managed by Sound Point Capital Management, LP (Sound Point). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $600 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year noncall period.

The class A loan contains a conversion option where, if exercised, all or a portion of the outstanding class A loan balance may be converted to class A-L notes. Upon conversion, the aggregate outstanding amount of class A-L notes shall be increased by the principal amount of the class A loans so converted, and the portion of the class A loans so converted shall cease to be outstanding. After a conversion, interest accrued on class A loans since the prior payment date (or closing date if no payment date has occurred) will be deemed to have accrued on class A-L notes. No class A-L notes may be converted into class A loans.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 35% for class A and A-L notes and A loans (collectively, the class A debt), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. Class X notes are ultimately expected to be paid in full from the application of interest proceeds via the interest waterfall. The degree of CE available to class A debt 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 'B+/B', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, class X and A debt are unlikely to be affected by the foreseeable level of defaults. Class X and A debt are projected to be able to withstand default rates of up to 77.8% and 58.8%, respectively.

Strong Recovery Expectations: The indicative portfolio consists of 96.3% first lien loans. Approximately 92.6% of the indicative portfolio has strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher and the base case recovery assumption of 73.8%. In determining the class X and A debt ratings, 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 34.3% 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 X notes and class A debt 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 X notes and class A debt.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, available at 'www.fitchratings.com' or by clicking on the above link.

For more information about Fitch's comprehensive subscription service Fitch Research, 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, Morgan Stanley & Co. 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: Sound Point CLO VIII, Ltd./Inc.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863976

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

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Counterparty Criteria for Structured Finance and Covered Bonds

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982177

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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
Derek Miller
Senior Director
+1-312-368-2076
or
Media Relations
Sandro Scenga, New York, +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
Derek Miller
Senior Director
+1-312-368-2076
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com