NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings and Rating Outlooks to AMMC CLO 18, Limited/Corp.:
--$58,000,000 class AL1 notes 'AAAsf'; Outlook Stable;
--$155,000,000 class AL2 notes 'AAAsf'; Outlook Stable;
--$30,000,000 class AF notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E1, E2 or subordinated notes.
TRANSACTION SUMMARY
AMMC CLO 18, Limited (the issuer) and AMMC CLO 18, Corp. (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by American Money Management Corporation. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $400 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: CE of 39.3% for class AL1, AL2 and AF notes (together, class A), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The degree of CE to class A notes is above the average CE of recent 'AAAsf' CLO notes, and 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 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 robust against default rates of up to 69.5%.
Strong Recovery Expectations: The indicative portfolio consists of 99.2% first lien senior secured loans. Approximately 91.5% 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 81.7%. In determining the class A note ratings, Fitch stressed the indicative portfolio by assuming a higher portfolio concentration of assets with lower recovery prospects and further reduced recovery assumptions of higher rating stress assumptions, resulting in a 41.6% recovery rate assumption in Fitch's 'AAAsf' scenario.
Fitch's "Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds," dated May 2016, includes stresses to address the risk of negative interest rates in structured finance transactions. U.S. CLOs are unlikely to be affected by negative interest rates due to the prevalence of LIBOR floors in the U.S. loan market. Therefore, we applied the standard (positive) interest rate downward stresses in our analysis.
RATING SENSITIVITIES
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 AL1, AL2 and AF notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA+sf' and 'AAAsf' for the class AL1, AL2 and AF notes.
Fitch published an exposure draft of its Counterparty Criteria for Structured Finance and Covered Bonds on April 14, 2016. The exposure draft serves as the operable criteria report for this ratings analysis. The transaction currently also conforms to Fitch's existing counterparty criteria (dated May 14, 2014). Therefore, there would be no impact to ratings should the proposed criteria not be adopted.
Key Rating Drivers and Rating Sensitivities are further described in the new issue report, which will be available shortly 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 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 (Jefferies LLC) and the public domain.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14
May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds (pub. 17 May 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815
Exposure Draft: Counterparty Criteria for Structured Finance and Covered
Bonds (pub. 14 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412
Global Rating Criteria for CLOs and Corporate CDOs (pub. 12 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873664
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005175
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005175
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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