NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to 5180-2 CLO LP:
--$603,600,000 class A-1 notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2A, A-2B, B, C, D, or subordinated notes.
5180-2 CLO LP is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Guggenheim Partners Investment Management, LLC (GPIM). Net proceeds from the issuance of notes will be used to purchase collateral to reach a target portfolio of approximately $992.05 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period that may be extended for up to an additional five years.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 39.2% for class A-1 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-1 notes is above the average for recent CLO issuances.
'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-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are robust against default rates of up to 64.6%.
Strong Recovery Expectations: The indicative portfolio consists of 95.2% senior secured loans. Approximately 87.5% 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 76.3%.
In determining ratings for class A-1 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 37.3% 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-1 notes to remain investment grade even under the most extreme sensitivity scenarios; results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf'.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which is available for 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:
Sources of information used to assess these ratings were provided by the arranger, Citigroup Global Markets Inc. and the public domain.
5180-2 CLO LP
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 CLOs and Corporate CDOs - Amended (pub. 12 Nov 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form