CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following rating and Rating Outlook to AMMC CLO 16, Limited/Corp. (AMMC CLO 16):
--$286,985,000 Class A1 Notes 'AAAsf', Outlook Stable;
--$31,000,000 Class A-F Notes 'AAAsf', Outlook Stable;
--$6,000,000 Class AX Notes 'AAAsf', Outlook Stable.
Fitch does not rate the class B1, B-F, C, D, E or subordinated notes.
AMMC CLO 16, Limited (the issuer) and AMMC CLO 16, Corp. (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by American Money Management Corporation (AMMC). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately $500 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement (CE): CE of 36.4% for class A1 and A-F notes (together, class A), 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 slightly below the average for recent CLO issuances. Class AX 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 slightly better than that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, class AX and A notes are unlikely to be affected by the foreseeable level of defaults. Class AX and A notes are robust against default rates of up to 100% and 65.1%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 99.6% first lien senior secured loans. Approximately 95.7% 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 79.2%.
In determining the class AX and A notes' 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 stress assumptions. The analysis of AMMC CLO 16, class AX and A notes, assumed a 38.9% recovery rate in Fitch's 'AAAsf' scenario.
Fitch evaluated the structure's sensitivity to the potential variability of key model assumptions including decreases in weighted average spread or recovery rates and increases in default rates or correlation. Fitch expects the class A1, A-F, and AX notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios remained at 'AAAsf' for class AX notes and ranged between 'AA-sf' and 'AAAsf' for class A notes.
Sources of information used to assess these ratings were provided by the arranger, Jefferies 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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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: AMMC CLO 16, Limited/Corp.
Counterparty Criteria for Structured Finance and Covered Bonds
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria
Criteria for Interest Rate Stresses in Structured Finance Transactions