CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating and Rating Outlook to Sound Point CLO XIV, Ltd./LLC:
--$451,500,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B-1, B-2, C, D or E notes or the subordinated notes.
TRANSACTION SUMMARY
Sound Point CLO XIV, Ltd. (the issuer) and Sound Point CLO XIV, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) managed by Sound Point Capital Management, LP. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $700 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 35.5% for class A 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 class A notes is below the average CE of recent 'AAAsf' CLO notes; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.
'B+' Asset Quality: The average credit quality of the indicative portfolio is 'B+', which is a relatively higher average credit quality than recent CLOs, where the average credit quality is typically closer to 'B'. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch Ratings' opinion, class A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are projected to be able to withstand default rates of up to 62.4%.
Strong Recovery Expectations: The indicative portfolio consists of 98.8% first lien senior secured loans. Approximately 95.5% of the indicative portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, and the base case recovery assumption is 80.3%. In determining the 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 38.1% recovery rate in Fitch's 'AAAsf' scenario.
RATING SENSITIVITIES
Fitch evaluated the class A notes' 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 notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and 'AAAsf' for the class A 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 these ratings was provided by the arranger (Credit Suisse Securities (USA) LLC) 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
Related Research
Sound Point CLO XIV, Ltd./LLC (US Structured Credit)
https://www.fitchratings.com/site/re/889309
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013466
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013466
Endorsement Policy
https://www.fitchratings.com/regulatory
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