CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings to ZAIS CLO 2, Limited/LLC (ZAIS 2):
--$106,400,000 class A-1A notes 'AAAsf'; Outlook Stable;
--$50,000,000 class A-1B notes 'AAAsf'; Outlook Stable;
--$50,000,000 class A-1 loan 'AAAsf'; Outlook Stable;
--$0 class A-1C notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-2, B, C, D, E or subordinated notes.
ZAIS CLO 2, Limited (the issuer) and ZAIS CLO 2, LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by ZAIS Leveraged Loan Manager 2, LLC (ZLM). Net proceeds from the issuance of the debt will be used to purchase a portfolio of approximately $325 million of leveraged loans. The CLO will have a 4.1-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36.5% for class A-1A notes, class A-1B notes, class A-1 loan and class A-1C notes (together, the class A-1 debt), 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-1 debt is below the average for recent CLO issuances.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is slightly better than that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch Ratings' opinion, the class A-1 debt is unlikely to be affected by the foreseeable level of defaults. Class A-1 debt is robust against default rates of up to 62.5%.
Strong Recovery Expectations: The indicative portfolio consists of 96.5% first lien senior secured loans. Approximately 93% 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 76.5%. In determining the class A-1 debt rating, 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 ZAIS 2, class A-1 debt, assumed a 35.5% recovery rate 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-1 debt 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-1 debt.
The expected ratings are based on information provided to Fitch as of Sept. 9, 2014. Sources of information used to assess these ratings were provided by the arranger, J.P. Morgan Securities LLC, and the public domain. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
The presale report is available to investors on Fitch's web site at www.fitchratings.com. For more information about Fitch's comprehensive subscription service FitchResearch, which includes all presale reports, surveillance and credit reports on more than 20 asset classes, contact product sales at +1-212-908-0800 or at 'email@example.com'.
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: ZAIS CLO 2, Limited/LLC
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions
Counterparty Criteria for Structured Finance and Covered Bonds