Fitch Rates CIFC Funding 2014-V, Ltd./LLC Refinancing Notes

NEW YORK--()--Fitch Ratings has assigned an 'AAAsf' rating to the class A-1R and A-2R notes of CIFC Funding 2014-V, Ltd./LLC (CIFC 2014-V). The Rating Outlook on each class is Stable.

Fitch does not rate the class B-R, C-R or D-2R notes.

TRANSACTION SUMMARY

Today, CIFC 2014-V issued refinancing obligations as class A-1R, A-2R, B-R, C-R and D-2R, and applied the net issuance proceeds thereof to redeem the existing class A-1, A-2, B, C and D-2 notes, respectively, at par (plus accrued interest).

The refinancing obligations were issued in the same amount and have the same terms as the respective previously outstanding classes, except that the spreads over LIBOR have been reduced as follows:

--Class A-1R notes spread was reduced to 1.40% from 1.58% on class A-1 notes;

--Class A-2R notes spread was reduced to 1.40% from 1.48% on class A-2 notes. The class A-2 notes spread was scheduled to step up to 1.83% in January 2017 for the life of the transaction;

--Class B-R notes spread was reduced to 2.00% from 2.50% on class B notes;

--Class C-R notes spread was reduced to 2.70% from 3.35% on class C notes;

--Class D-2R notes spread was reduced to 4.15% from 4.50% on class D-2 notes.

The non-call period for the refinancing obligations was also extended to the payment date in April 2018 with respect to any optional redemption by refinancing or re-pricing. The first supplemental indenture did not make any other material changes to the transaction.

KEY RATING DRIVERS

The reduction in the cost of the liabilities is viewed as credit positive for class A-1R and A-2R (together, class A-R) notes and the transaction continues to display stable performance since the last review on Nov. 17, 2015. Cash flow model analysis also indicates the class A-R notes perform in line with the assigned ratings in Fitch's standard cash flow scenarios. Therefore Fitch determined that the ratings on the refinancing obligations shall be assigned at the same rating level as the original notes.

The loan portfolio par amount plus principal cash is approximately $554 million, as of the Sept. 7, 2016 trustee report, with one approximately $2 million defaulted asset in the portfolio. All collateral quality tests, concentration limitations, and coverage tests are in compliance.

FITCH ANALYSIS

Cash flow analysis was performed on the transaction's current portfolio and a new Fitch stressed portfolio, which assumed maximum limitations for second lien loans (10%), the largest three industries (15%, 12% and 12%), the largest five obligors (4% each, comprising 2.5% senior secured loans and 1.5% second lien loans), fixed rate assets (5%) and the weighted average life (6.3 years). Fitch considers 9.3% of the current portfolio to be rated 'CCC+' or below and maintained this percentage in the Fitch stressed portfolio. Additional detail on the methodology for creating the Fitch stressed portfolio is provided in the transaction's New Issue Report published on Feb. 23, 2015.

Projected default and recovery statistics of the stressed portfolio were generated using Fitch's portfolio credit model (PCM). The PCM default rate and recovery rate outputs for the 'AAAsf' rating stress were 60.5% and 33.7%, respectively.

Fitch's cash flow modeling considered nine stress scenarios to account for different combinations of three default timings and three interest rate stresses. The class A-R notes passed the 'AAAsf' PCM hurdle rate in all nine scenarios when analysing the actual portfolio with a minimum cushion of 13.4%. In the analysis of the Fitch stressed portfolio, class A-R notes passed the 'AAAsf' PCM hurdle in seven of the nine stress scenarios, with two model failures of 2.3% and 1.3%. When analyzing a stressed portfolio of 100% floating-rate assets, class A-R notes passed the 'AAAsf' PCM hurdle in eight of the nine scenarios with one marginal failure of 0.8%.

Given the marginal failure of the class A-R notes, Fitch tested the performance of these notes at a level one notch below the 'AAAsf' rating hurdle; the notes passed the 'AA+sf' PCM hurdle rate in all nine scenarios with a minimum cushion of 5.2%.

Fitch was comfortable assigning 'AAAsf' to the class A-R notes because the agency believes the notes can sustain a robust level of defaults, combined with low recoveries, as well as other factors such as strong performance of the notes in the sensitivity scenarios, the degree of cushion when analyzing the actual portfolio, and the transactions performance since closing.

The Stable Outlook on the class A-R notes reflects the expectation that the class has sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio in stress scenarios commensurate with such class's rating. The results of the sensitivity analysis described below contributed further to Fitch's assignment of Stable Outlooks to both classes of notes.

RATING SENSITIVITIES

Fitch evaluated the notes' sensitivity to the potential variability of key model assumptions including decreases in weighted average spread or recovery rates and increases in default rates or correlation. Fitch expects class A-1R and A-2R notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AAAsf' and 'A-sf' for both classes of notes.

Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report.

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.

Fitch has assigned the following ratings:

--$307,000,000 class A-1R notes 'AAAsf; Outlook Stable;

--$50,000,000 class A-2R notes 'AAAsf; Outlook Stable.

Class A-1 and A-2 notes have been marked 'PIF'.

Sources of Information:

Sources of information used to assess these ratings were the arranger (Morgan Stanley & Co. LLC), the trustee's monthly and note valuation reports, 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=1013258

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013258

Endorsement Policy

https://www.fitchratings.com/regulatory

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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
Alina Pak, CFA
Senior Director
+1-312-368-3184
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
Alina Pak, CFA
Senior Director
+1-312-368-3184
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com