CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating and Rating Outlook to Jackson Mill CLO Ltd./LLC:
--$352,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D or E notes, or the subordinated notes.
Jackson Mill CLO Ltd. (the issuer) and Jackson Mill CLO LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Shenkman Capital Management, Inc. (Shenkman). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $550 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a 1.5-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for the class A 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 class A notes is in line with the average CE of recent CLO issuances.
'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 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 59.1%.
Strong Recovery Expectations: The indicative portfolio contains 96.6% first-lien senior-secured loans. Approximately 91.3% 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 77.7%. In determining the rating of the class A notes, 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 notes assumed a 37% recovery rate in Fitch's 'AAAsf' scenario.
Fitch evaluated 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 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.
The expected ratings are based on information provided to Fitch as of April 16, 2015. Sources of information used to assess these ratings were provided by the arranger (Credit Suisse Securities (USA) LLC), and the public domain.
Key Rating Drivers and Rating Sensitivities are further detailed in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (March 31, 2015);
--'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: Jackson Mill CLO Ltd./LLC
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