CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating and Rating Outlook to Denali Capital CLO XII Ltd./LLC:
--$192,250,000 class A-1 notes 'AAAsf', Outlook Stable;
--$30,000,000 class A-2 notes 'AAAsf', Outlook Stable.
Fitch does not expect to rate the class B-1, B-2, C, D, E or F notes or the subordinated notes.
Denali Capital CLO XII, Ltd. (the issuer) and Denali Capital CLO XII, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Crestline Denali Capital, L.P. (Crestline Denali). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $350 million of primarily senior-secured 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 36.5% for the class A-1 and A-2 notes (collectively 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 the class A notes is in line with the average CE of recent CLO issuances.
'B/B-' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is comparable with recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative 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 projected to be able to withstand default rates of up to 64.5%.
Strong Recovery Expectations: The indicative portfolio consists of 99.4% first-lien loans. Approximately 94.1% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher and a base case recovery assumption of 80.1%. In determining the class A notes' ratings, 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 37.5% 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 A-1 and A-2 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-1 and A-2 notes.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
The publication of a representations, warranties and enforcement mechanisms appendix is not required for this transaction.
Additional information is available at www.fitchratings.com.
Sources of Information:
Sources of information used to assess this rating were provided by the arranger (BNP Paribas Securities Corp.) and the public domain.
Denali Capital CLO XII, Ltd.LLC
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 (pub. 12 Nov 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form