CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following rating to Battalion CLO IX Ltd./LLC:
--$322,500,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D, or E notes or the subordinated notes.
Battalion CLO IX Ltd. (the issuer) and Battalion CLO IX LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Brigade Capital Management, LP (Brigade). 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. The CLO will have a five-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.5% 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 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 a highly speculative credit quality; however, in Fitch Ratings' opinion, class A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are projected to be able to withstand default rates of up to 60.7%.
Strong Recovery Expectations: The indicative portfolio consists entirely of first-lien senior secured loans. Approximately 93.6% 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 determining the class A note 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 the class A notes assumed a 36.4% 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 'BBB+sf' and 'AAAsf' for the class A notes.
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.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
Sources of Information:
The sources of information used to assess these ratings were provided by the arranger (RBC Capital Markets, LLC) and the public domain.
Battalion CLO IX Ltd./LLC (US Structured Credit)
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)
Global Rating Criteria for Corporate CDOs (pub. 25 Jul 2014)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Battalion CLO IX Ltd./LLC Appendix
Dodd-Frank Rating Information Disclosure Form