CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to Arrowpoint CLO 2015-4, Ltd./LLC:
--$252,250,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E, or F notes, the subordinated notes, or the delayed draw notes corresponding to each class of secured notes.
Arrowpoint CLO 2015-4, Ltd. (the issuer) and Arrowpoint CLO 2015-4, LLC (the co-issuer), together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Arrowpoint Asset Management, LLC (Arrowpoint). 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 will have a four-year reinvestment period and a four-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement (CE): CE of 36.9% for class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an '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 in line with other 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 60.2%.
Strong Recovery Expectations: The indicative portfolio consists of 94.2% first lien senior secured loans. Approximately 89.4% 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 75.6%. In determining the class A notes' 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 stress assumptions. The analysis of class A notes assumed a 37.9% 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 sources of information used to assess these ratings were provided by the arranger, Deutsche Bank Securities Inc., and the public domain.
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 link below.
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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: Arrowpoint CLO 2015-4, Ltd./LLC
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Interest Rate Stresses in Structured Finance Transactions
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria