NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to Silver Spring CLO Ltd./LLC (Silver Spring):
--$258,000,000 class A senior secured floating rate notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C-1, C-2, D, E, F or subordinated notes.
Silver Spring is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Silvermine Capital Management. A portion of net proceeds from the issuance of notes 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 $400 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.5% for class A, 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 notes is below the average for recent CLO issuances.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/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's opinion, class A notes are unlikely to be affected by the foreseeable level of defaults. The class A notes are robust against default rates of up to 59.9%.
Strong Recovery Expectations: The indicative portfolio consists of 93.2% senior-secured loans. Approximately 88.1% 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 73.4%. In determining ratings for class A 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 35.8% 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 notes 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.
Sources of information used to assess these ratings were provided by the arranger, Barclays Capital Inc., 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:
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