NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to THL Credit Wind River 2014-2 CLO Ltd./LLC (THL Wind River 2014-2):
--$140,000,000 class A-1 notes 'AAAsf'; Outlook Stable;
--$200,000,000 class A loans 'AAAsf'; Outlook Stable;
--$50,000,000 class A-2 notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B-1, B-2, C-1, C-2, D, E, F or subordinated notes.
THL Wind River 2014-2 is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by THL Credit Advisors LLC. A portion of the net proceeds from the issuance of the notes and incurrence of the class A loans will be used to repay parties that provided interim financing, allowing the issuer to purchase collateral prior to the closing date. The remainder of net proceeds will be used to purchase assets to reach a target portfolio of approximately $620 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37.1% for class A-1 notes, A loans and A-2 notes (together, class A obligations), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The level of CE for class A obligations is in line with the average for recent CLO issuances.
'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 relatively weak credit quality; however, in Fitch's opinion, class A obligations are unlikely to be affected by the foreseeable level of defaults. Class A obligations are robust against default rates of up to 60%.
Strong Recovery Expectations: The indicative portfolio consists of 98.2% senior-secured loans. Approximately 95% 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 77.8%. In determining ratings for class A obligations, 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 35.9% recovery rate assumption in Fitch's 'AAAsf' scenario.
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. Fitch expects the class A obligations 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 obligations.
The expected ratings are based on information provided to Fitch as of Aug. 8, 2014. Sources of information used to assess these ratings were provided by the arranger, GreensLedge Capital Markets LLC, and the public domain. 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. 4, 2014);
--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 23, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).
Applicable Criteria and Related Research: THL Credit Wind River 2014-2 CLO Ltd./LLC (US STRUCTURED CREDIT)
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria