CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings and Rating Outlooks to WhiteHorse X, Ltd./LLC (WhiteHorse X):
--$299,000,000 class A-1 notes 'AAAsf'; Outlook Stable;
--$16,000,000 class A-2 notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C, D, E, F, funding notes or subordinated notes.
WhiteHorse X, Ltd. and WhiteHorse X, LLC (together, WhiteHorse X, or the issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by H.I.G. WhiteHorse Capital, LLC (H.I.G. WhiteHorse). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $500 million of primarily leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37% for class A-1 and A-2 notes (together, 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 slightly higher than the average for recent CLO issuances.
'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, the 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 66.7%.
Strong Recovery Expectations: The indicative portfolio consists of 100% first lien senior secured loans. Approximately 96.4% 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 79.1%. In determining the class A notes' rating, 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 WhiteHorse X class A notes assumed a 36.2% recovery rate 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.
The sources of information used to assess these ratings were provided by the arranger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and the public domain.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which is available 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' (March 31, 2015);
--'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: WhiteHorse X, Ltd./LLC
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