CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings and Rating Outlooks to NewStar Commercial Loan Funding 2015-1 LLC:
--$253,500,000 class A-1 notes 'AAAsf'; Outlook Stable;
--$35,000,000 class A-2 notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, or D notes, or the membership interests.
NewStar Commercial Loan Funding 2015-1 LLC (the issuer) is a middle-market (MM) collateralized loan obligation (CLO) that will be managed by NewStar Financial, Inc. (NewStar). Net proceeds from the issuance of the secured notes and membership interests will be used to purchase a portfolio of $500 million of MM loans. The CLO will have a four-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 42.3% for class A-1 and class A-2 (collectively, class A) notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an 'AAAsf' stress scenario. CE is significantly higher than the levels typically seen on broadly syndicated CLOs.
'B/B-' Asset Quality: Fitch expects the credit quality of the underlying obligors to primarily fall in the 'B/B-' range. Fitch's base case analysis centered on a portfolio with a weighted average rating factor (WARF) of 43, in accordance with the initial expected matrix point. The analysis indicated the class A notes demonstrate cash flow performance in line with other 'AAAsf' CLO notes. In the base case analysis, class A notes are projected to withstand default rates of up to 75.4%.
Strong Recovery Expectations: The transaction requires a minimum of 90% of the portfolio to consist of senior secured loans, cash and eligible investments, while portfolio management is governed in part by a Fitch weighted average recovery rate (WARR) test. In its base case analysis of the class A notes, Fitch modified the WARR of the portfolio to reach the base case minimum trigger of 71.5%, and further reduced recovery assumptions for higher rating stress scenarios. The base case analysis of class A notes assumed a 37.1% 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 notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf' for the class A notes.
The expected ratings are based on information provided to Fitch as of March 10, 2015. Sources of information used to assess these ratings were provided by the arranger (Wells Fargo Securities, LLC), NewStar, and the public domain.
Key Rating Drivers and Rating Sensitivities are further detailed in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the link.
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' (Dec. 19, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).
Applicable Criteria and Related Research: NewStar Commercial Loan Funding 2015-1 LLC (US Structured Credit)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds
Counterparty Criteria for Structured Finance and Covered Bonds
Global Structured Finance Rating Criteria
Global Rating Criteria for Corporate CDOs