CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings and Rating Outlooks to Bean Creek CLO, Ltd./LLC:
--$2,800,000 class X notes 'AAAsf(EXP)'; Outlook Stable;
--$196,500,000 class A notes 'AAAsf(EXP)'; Outlook Stable.
Fitch does not expect to rate the class B-1, B-2, C, D, E, F or subordinated notes.
Bean Creek CLO, Ltd. (the issuer) and Bean Creek CLO, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by CreekSource LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $300 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 34.5% for class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to class A notes is lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' CLO notes. The class X 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 a highly speculative credit quality; however, class X and A notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes are projected to be able to withstand default rates of up to 100% and 61.8%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 100% first lien senior secured loans. Approximately 96.5% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, and the base case recovery assumption is 81.4%. In determining the rating of class X and 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 stress assumptions. The analysis of class X and A notes assumed a 40% recovery rate in Fitch's 'AAAsf'.
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 X and 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 class X notes passed at the 'AAAsf' rating level in all tested sensitivity scenarios.
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:
Sources of information used to assess these ratings were provided by the arranger, J.P. Morgan Securities LLC, and the public domain.
Bean Creek CLO, 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. 12 Nov 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form