NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating to Battalion CLO VI LTD./LLC (Battalion VI):
--$290,800,000 class A-1 notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-2, B, C, D, E or the subordinated notes.
Battalion VI is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Brigade Capital Management, LLC (Brigade). Net proceeds from the issuance of secured and subordinated notes will be used to purchase a portfolio of approximately $450 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.4% 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 class A-1 notes is lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.
'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's opinion, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 64.6%.
Strong Recovery Expectations: The indicative portfolio consists of 100.0% first lien senior secured loans. Approximately 95.9% 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 78.2%. In determination of the class A-1 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 Battalion VI's class A-1 notes assumed a 37.8% recovery rate in Fitch's 'AAAsf' scenario.
Fitch evaluated the structure's sensitivity to the potential variability of key model assumptions, including decreases in recovery rates and increases in default rates or correlation. Fitch expects the class A-1 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-1 notes.
The expected ratings are based on information provided to Fitch as of Sept. 10, 2014. Sources of information used to assess these ratings were provided by the arranger, Citigroup Global Markets Inc., 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 'firstname.lastname@example.org'.
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).
--'Battalion CLO VI Ltd./LLC -- Appendix'
Applicable Criteria and Related Research: Battalion CLO VI 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