CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings and Rating Outlooks to Crestline Denali CLO XIV, Ltd./LLC:
--$222,250,000 class A notes 'AAAsf'; Outlook Stable;
--$42,875,000 class B notes 'AAsf'; Outlook Stable.
Fitch does not rate the class C, D or E notes or the subordinated notes. On Aug. 31, 2016, Fitch assigned an expected rating to only the class A notes. On the closing date, Fitch assigned ratings to both class A and class B notes.
Crestline Denali CLO XIV, Ltd. (the issuer) and Crestline Denali CLO XIV, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Crestline Denali Capital, L.P. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $350 million of primarily first-lien 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 the class A notes and 24.3% for class B notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' and 'AAsf' stress scenarios, respectively. The degree of CE available to the class A and B notes is in line with the average CE of recent 'AAAsf' and 'AAsf' CLO issuances, respectively.
'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 opinion, class A and class B notes are unlikely to be affected by the foreseeable level of defaults. Class A and class B notes are projected to be able to withstand default rates of up to 62.4% and 58.0%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 100% first-lien senior-secured loans. Approximately 96.3% 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 81.9%. In determining the class A and class B 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 39.7% and 48.2% recovery rates in Fitch's 'AAAsf' and 'AAsf' scenarios, respectively.
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 and class B 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 and 'BBB-sf' and 'AAAsf' for the class B notes.
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.
Sources of Information:
The information used to assess this rating was provided by the arranger (BNP Paribas Securities Corp.) and the public domain.
Additional information is available at www.fitchratings.com.
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. 09 Sep 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Crestline Denali CLO XIV, Ltd./LLC (US Structured Credit)
Dodd-Frank Rating Information Disclosure Form
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