CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating to CIFC Funding 2015-II, Ltd./LLC:
--$325,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D or E notes or the subordinated notes.
CIFC Funding 2015-II, Ltd. (the issuer) and CIFC Funding 2015-II, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by CIFC Asset Management LLC (CIFC). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a 1.4-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.0% 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 the class A notes is lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' CLO notes.
'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch Ratings' 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 58.6%.
Strong Recovery Expectations: The indicative portfolio consists of 99.4% first-lien loans. Approximately 95.0% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher and the base case recovery assumption is 77.9%. 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 36.2% 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 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 20, 2015. Sources of information used to assess these ratings were provided by the arranger (Barclays Capital Inc.) 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 'email@example.com'.
Additional information is available at 'www.fitchratings.com'.
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: CIFC Funding 2015-II, 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