CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings and Rating Outlooks to CIFC Funding 2105-IV, Ltd./LLC:
--$287,200,000 class A-1A notes 'AAAsf'; Outlook Stable;
--$35,000,000 class A-1B notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-2, B, C-1, C-2, D, E or subordinated notes.
CIFC Funding 2015-IV, Ltd. (the issuer) and CIFC Funding 2015-IV, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by CIFC Asset Management LLC (CIFC). 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 an approximately five-year reinvestment period and a three-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.6% for class A-1A and A-1B notes (collectively the "A-1 notes"), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an 'AAAsf' stress scenario. The degree of CE available to class A-1 notes is lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' CLO notes.
'B' Asset Quality: The average credit quality of the indicative portfolio is '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, class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 64.1%.
Strong Recovery Expectations: The indicative portfolio consists of 99.4% first lien senior secured loans. Approximately 95.8% 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 79.4%. In determining the class A-1 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 class A-1 notes assumed a 37.0% 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-1 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-1 notes.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
The publication of a RW&Es appendix is not required for this transaction.
Additional information is available at www.fitchratings.com.
Sources of Information:
The ratings are based on information provided to Fitch as of Sept. 18, 2015. Sources of information used to assess these ratings were provided by the arranger (Citigroup Global Markets Inc.) 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'.
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 CLOs and Corporate CDOs (pub. 30 Jul 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form