Fitch Rates Garrison Funding 2016-1 Ltd./ LLC

NEW YORK--()--Fitch Ratings has assigned the following ratings and Rating Outlooks to Garrison Funding 2016-1 Ltd./LLC:

--$254,000,000 class A-1 notes 'AAAsf', Outlook Stable;

--$4,000,000 class X notes 'AAAsf', Outlook Stable.

Fitch does not rate the class A-2, B, C-1, C-2, D or subordinated notes.

TRANSACTION SUMMARY

Garrison Funding 2016-1 Ltd. (the issuer) and Garrison Funding 2016-1 LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) which will be managed by Garrison Funding 2016-1 Manager LLC (an affiliate of Garrison Investment Group, LP). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $400 million 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 class A-1 notes, 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 class A-1 notes is in line with the average CE of recent CLO issuances. Class X notes are expected to be paid in full from the application of interest proceeds.

'B/B-' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is in line with recent Fitch-rated CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class A-1 and X notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 and X notes are robust against default rates of up to 61.6% and 97.1%, respectively.

Strong Recovery Expectations: The indicative portfolio consists of 100.0% first lien senior secured loans. Approximately 96.6% 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 79.6%. In determining class A-1 and X 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 38.5% 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 and X 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 notes and remained at 'AAAsf' for the class X notes.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly 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. CLO 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. CLO 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:

Sources of information used to assess this rating were the arranger (Deutsche Bank Securities Inc.) and the public domain.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/site/re/879815

Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Sep 2016)

https://www.fitchratings.com/site/re/887497

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012763

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012763

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Erika Tsang, CFA
Director
+1-212-908-0817
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
John Um, CFA
Director
+1-212-908-0287
or
Committee Chairperson
Derek Miller
Managing Director
+1-312-368-2076
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Erika Tsang, CFA
Director
+1-212-908-0817
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
John Um, CFA
Director
+1-212-908-0287
or
Committee Chairperson
Derek Miller
Managing Director
+1-312-368-2076
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com