NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to ALM XI, LTD./LLC (ALM XI):
--$348,750,000 class A-1 senior secured floating rate notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2a, A-2b, B, C, D or the subordinated notes.
ALM XI, Ltd. and ALM XI, LLC (together, ALM XI, or the issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Apollo Credit Management (CLO), LLC (Apollo Credit). Net proceeds from the issuance of the notes will be used to purchase assets to reach a target portfolio of approximately $550 million of leveraged loans. The CLO will have a four year reinvestment period ending in October 2018.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36.6% for class A-1 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 the class A-1 notes is lower than the average CE of recent CLO issuances; however, cash flow modeling results indicate 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 comparable to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. The class A-1 notes are each robust against default rates of up to 62.5%.
Strong Recovery Expectations: The indicative portfolio consists of 97.4% first lien senior secured loans. Approximately 89.2% 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 75.9%. In determining ratings for the class A-1 notes, 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 35.7% 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. The class A-1 notes are expected to remain investment grade even under the most extreme sensitivity scenarios; results ranged between the 'Asf' and 'AAAsf' rating categories.
The sources of information used to assess these ratings were the transaction documents provided by the arranger, Credit Suisse Securities (USA) LLC, and the public domain. Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly to investors on Fitch's website at 'www.fitchratings.com'.
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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:
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