NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to Dryden 40 Senior Loan Fund/LLC:
--$379,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E, F or subordinated notes
Dryden 40 Senior Loan Fund (issuer) and Dryden 40 Senior Loan Fund LLC (co-issuer), together, Dryden 40 Senior Loan Fund, comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Prudential Investment Management, Inc. Net proceeds will be used to purchase assets to reach a target portfolio of approximately $600 million of leveraged loans. The CLO will have an approximately five-year reinvestment period and two-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36.8% 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 in line with the average for recent CLO issuances, and cash flow modeling indicates performance in line with other Fitch-rated CLO notes.
'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's opinion, class A notes are unlikely to be affected by the foreseeable level of defaults. The class A notes are robust against default rates of up to 59.9%.
Strong Recovery Expectations: The indicative portfolio consists of 96.5% senior secured loans. Approximately 89.9% of the indicative portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, and the base case recovery assumption is 77.3%. In determining the ratings for 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 stresses, resulting in a 36.6% 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 A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf' for the class A notes.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly to investors on Fitch's website at 'www.fitchratings.com'.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
The publication of a RW&Es appendix is not required for this transaction.
Additional information is available at www.fitchratings.com.
Sources of Information:
The sources of information used to assess these ratings were provided by the arranger, Wells Fargo Securities, LLC, and the public domain.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)
Global Rating Criteria for Corporate CDOs (pub. 25 Jul 2014)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form