Fitch to Rate Apidos CLO XXV/LLC; Issues Presale Report

CHICAGO--()--Fitch Ratings expects to assign the following rating and Rating Outlook to Apidos CLO XXV/LLC:

--$451,500,000 class A-1 notes, 'AAA(EXP)sf', Outlook Stable.

Fitch does not expect to rate the A-2A, A-2B, B, C, D-1, D-2, and subordinated notes.

TRANSACTION SUMMARY

Apidos CLO XXV (the issuer) and Apidos CLO XXV LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by CVC Credit Partners, LLC (CVC). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $700 million of primarily senior-secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 35.5% for the class A-1 notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to the class A-1 notes is slightly lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance is in line with other 'AAAsf' CLO notes.

'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, class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 62.1%.

Strong Recovery Expectations: The indicative portfolio consists of 96.5% first-lien loans. Approximately 92.6% 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%. In determining the class A-1 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 36.5% recovery rate 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 notes to remain investment grade even under the most extreme sensitivity scenarios, with results under these sensitivity scenarios ranging between 'A+sf' and 'AAAsf'.

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' or by clicking on the link.

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.

Link to Fitch Ratings' Report: Apidos CLO XXV/LLC (US Structured Credit)

https://www.fitchratings.com/site/re/888755

Sources of Information:

The sources of information used to assess these ratings were the arranger (Merrill Lynch, Pierce, Fenner & Smith Incorporated) and the public domain.

Additional information is available at www.fitchratings.com.

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=1012839

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012839

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Cristina Jennings
Associate Director
+1-312-606-2300
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Aaron Hughes
Director
+1-312-368-2074
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
Cristina Jennings
Associate Director
+1-312-606-2300
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Aaron Hughes
Director
+1-312-368-2074
or
Committee Chairperson
Derek Miller
Managing Director
+1-312-368-2076
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com