CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following rating and Rating Outlook to OHA Loan Funding 2015-1 Ltd./Inc.:
--$416,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C, D, E, F, subordinated notes or the funding notes corresponding to each class of secured notes.
OHA Loan Funding 2015-1 Ltd. (the issuer) and OHA Loan Funding 2015-1 Inc. (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Oak Hill Advisors, L.P. (Oak Hill). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $650 million of primarily senior-secured leveraged loans. The CLO will have a four-year reinvestment period and a 1.7-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for class A notes, 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; however, cash flow modeling indicates performance in line with other 'AAAsf' rated CLO notes.
'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is in line with 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. Class A notes are robust against default rates of up to 62.2%.
Strong Recovery Expectations: The indicative portfolio consists of 95.5% 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 75.5%. 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 35.6% recovery rate assumption 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 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, J.P. Morgan Securities LLC, and the public domain.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which is available 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' (Dec. 19, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).
Applicable Criteria and Related Research: OHA Loan Funding 2015-1 Ltd./Inc.
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