NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to Halcyon Loan Advisors Funding 2015-1 Ltd./LLC:
--$4,000,000 class X notes 'AAAsf'; Outlook Stable;
--$310,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C, D, E, F, class 1 subordinated notes or class 2 subordinated notes.
Halcyon Loan Advisors Funding 2015-1 Ltd. and Halcyon Loan Advisors Funding 2015-1 LLC (together, Halcyon 2015-1, or the issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Halcyon Loan Advisors 2015-1 LLC (Halcyon; a wholly owned subsidiary of Halcyon Loan Management, LLC). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 million of primarily leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Welcome Sufficient Credit Enhancement: Credit enhancement (CE) of 38.0% for class A notes, 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 class A notes is above the average of recent CLO issuances. Class X notes are ultimately expected to be paid in full from the application of interest proceeds via the interest waterfall.
'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 relatively weak credit quality; however, in Fitch Ratings' opinion, class X notes and class A notes are unlikely to be affected by the foreseeable level of defaults. Class X notes and class A notes are robust against default rates of up to 100.0% and 64.2%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 98.2% senior secured loans, of which about 95.4% have strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher and the base case recovery assumption is 78.3%. In determining the ratings for the class X and 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 stresses, resulting in a 36.8% recovery rate assumption 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 X notes to remain 'AAAsf' and 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.
Sources of information used to assess these ratings were provided by the arranger, Morgan Stanley & Co. LLC, and the public domain. Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report which is available to investors on Fitch's website at 'www.fitchratings.com'.
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Applicable Criteria and 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: Halcyon Loan Advisors Funding 2015-1 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