NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to 1828 CLO Ltd./LLC:
--$1,600,000 class X notes 'AAAsf', Outlook Stable;
--$221,900,000 class A-1-S notes 'AAAsf', Outlook Stable.
Fitch does not rate the class A-1-J, A-2a, A-2b, B, C or D notes or the subordinated notes.
TRANSACTION SUMMARY
1828 CLO Ltd. (the issuer) and 1828 CLO LLC (the co-issuer) comprise 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 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 noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 44.5% for class A-1-S, 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 available to the class A-1-S notes is above the average CE of recent CLO issuances. Class X notes are expected to be paid in full on the third payment date from the application of interest proceeds.
'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 X and A-1-S notes are unlikely to be affected by the foreseeable level of defaults. Class X and A-1-S notes are robust against default rates of up to 100% and 71.1%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 94.2% first lien senior secured loans. Approximately 88.5% 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 74.9%. In determining the class X and A-1-S 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 36.6% recovery rate assumption in Fitch's 'AAAsf' scenario.
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 A-1-S notes to remain investment grade even under the most extreme sensitivity scenarios, with results under these sensitivity scenarios ranging between 'AAsf' and 'AAAsf'. The class X notes are expected to remain 'AAAsf' under even the most extreme sensitivity scenarios.
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 expected ratings should the proposed criteria not be adopted.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue 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 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 (GreensLedge Capital Markets LLC) and the public domain.
1828 CLO Ltd./LLC
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884289
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. 09 Jun 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882840
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008188
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008188
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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