NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating to York CLO-2 Ltd./LLC:
-- $320,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D, E or subordinated notes.
York CLO-2 Ltd. (issuer) and York CLO-2 LLC (co-issuer), together, York 2, comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by York CLO Managed Holdings, LLC (York). Net proceeds will be used to purchase assets to reach a target portfolio of approximately $500 million of leveraged loans. The CLO will have an approximately four-year reinvestment period and two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% 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 below the average for recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' Fitch-rated CLO notes.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is slightly better relative 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. Class A notes are robust against default rates of up to 60.1%.
Strong Recovery Expectations: The indicative portfolio consists of 95.7% senior secured loans. Approximately 89.2% 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 75.9%. 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 38.2% 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 presale report, which is available 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 expected ratings are based on information provided to Fitch as of Sept. 4, 2015. Sources of information used to assess these ratings were provided by the arranger, Credit Suisse Securities (USA) LLC, and the public domain.
York CLO-2 Ltd./LLC (US Structured Credit)
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds (pub. 19 Dec 2014)
Global Rating Criteria for CLOs and Corporate CDOs (pub. 30 Jul 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form