CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings and Rating Outlooks to TICP CLO III, Ltd./LLC:
--$3,000,000 class X notes 'AAAsf'; Outlook Stable;
--$320,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C, D-1, D-2, E-1, E-2, or F notes, or the subordinated notes.
TICP CLO III, Ltd. (the issuer) and TICP CLO III, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by TICP CLO III Management, LLC, a wholly owned subsidiary of TPG Institutional Credit Partners, LLC (TICP). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 million of primarily senior secured leveraged loans.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for the class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to the class A notes is slightly below the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' rated CLO notes. The class X notes are expected to be paid in full from the application of interest proceeds via the interest waterfall.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is approximately 'B+/B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, the class X and class A notes are unlikely to be affected by the foreseeable level of defaults. The class X and class A notes are projected to be able to withstand default rates of up to 100% and 59.6%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 98.9% first-lien senior secured loans. Approximately 92.3% 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 77.5%. In determination of the class X and A notes' 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 the class X and class A notes assumed a 35.5% recovery rate in Fitch's 'AAAsf' scenario.
Fitch evaluated 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 X and class A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios were 'AAAsf' for the class X notes and ranged between 'Asf' and 'AAAsf' for the class A notes.
The sources of information used to assess these ratings were provided by the arranger, Morgan Stanley & Co. 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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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:
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds