CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating and Rating Outlook to Ballyrock CLO 2016-1 Ltd./LLC:
--$224,000,000 Class A notes 'AAA(EXP)sf', Outlook Stable.
Fitch does not expect to rate the class B-1, B-2, C, D, E-1, E-2, or subordinated notes.
Ballyrock CLO 2016-1 Ltd. (the issuer) and Ballyrock CLO 2016-1 LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Ballyrock Investment Advisors LLC (Ballyrock). Net proceeds from the issuance of the 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 36.0% for the class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The level of CE available to class A notes is in line with the average for recent CLO issuances.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak 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 61.8%.
Strong Recovery Expectations: The indicative portfolio consists of 96.1% first lien senior secured loans. Approximately 87.6% 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 76.7%. In determining the ratings for 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, resulting in a 39.3% recovery rate assumption in Fitch's 'AAAsf' scenario.
Fitch evaluated the structure's sensitivity to the potential variability of key model assumptions including decreases in recovery rates or increases in default rates or correlation. Fitch expects the class 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.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investor's on Fitch's website at 'fitchratings.com'.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction. Offering documents for U.S. CLOS transactions do not typically include RW&Es that are available to investors and that relate to the asset pool underlying the security. Therefore, Fitch credit reports for U.S. CLOS transactions will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated May 31, 2016.
Additional information is available at www.fitchratings.com.
Sources of Information:
The sources of information used to assess these ratings were the arranger (Goldman Sachs & Co.) and the public domain.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
Global Rating Criteria for CLOs and Corporate CDOs (pub. 28 Jul 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Ballyrock CLO 2016-1 Ltd./LLC
Dodd-Frank Rating Information Disclosure Form