CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings 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 rate the class B-1 loans, or any of the class B-1, B-2, C, D, or E notes or the subordinated notes.
Denali Capital CLO XII, Ltd. (the issuer) and Denali Capital CLO XII, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Crestline Denali Capital, L.P. Net proceeds from the issuance of the secured debt 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 non-call 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 an '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' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is comparable to 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 65.2%.
Strong Recovery Expectations: The indicative portfolio consists of 100% first-lien loans. Approximately 95.5% 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 80.4%. 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 37.8% recovery rate 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 and class 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.
Key Rating Drivers and Rating Sensitivities are further detailed in the new issue report, which will be available shortly to investors 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 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.
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