NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to Madison Park Funding XIV, Ltd./LLC (Madison Park XIV):
--$5,000,000 class X floating rate notes 'AAAsf'; Outlook Stable;
--$410,000,000 class A-1 exchangeable floating rate notes 'AAAsf'; Outlook Stable;
--$210,000,000 class A-2 floating rate notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C-1, C-2, D, E and F notes or the subordinated notes.
Madison Park XIV is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Credit Suisse Asset Management, LLC (CSAM). Net proceeds from the issuance of secured and subordinated notes will be used to purchase a portfolio of approximately $1.0 billion of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 38.0% for class A-1 and A-2 notes (collectively, the class A 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 notes is above the average for recent CLO issuances. Class X notes are expected to be paid in full from the application of interest proceeds via the interest waterfall within one year of closing.
'B/B-' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch Ratings' opinion, the class X and class A notes are unlikely to be affected by the foreseeable level of defaults. Class X and class A notes are projected to be able to withstand default rates of up to 100.0% and 64.4%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 97.6% first lien senior secured loans. Approximately 92.7% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, resulting in a base case recovery assumption of 77.2%. In determination of the class X and A note 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 stress assumptions. The analysis of Madison Park XIV's class X and class A notes assumed a 36.6% recovery rate in Fitch's 'AAAsf' scenario.
Consistent Portfolio Parameters: The portfolio will be actively managed and bound by concentration limitations addressing various loan characteristics. The concentration limitations presented to date are within the range of limits set in the majority of recent CLOs. Fitch addressed the impact of the most prominent risk-presenting concentration allowances.
In addition to Fitch's stated criteria, the agency analyzed the structure's 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. The class X and class A notes are expected 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. The class X notes passed at an 'AAAsf' rating level in all tested sensitivity scenarios.
The expected ratings are based on information provided to Fitch by the arranger, Morgan Stanley & Co. LLC as of August 06, 2014. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
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Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 04, 2014);
--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds