CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign the following ratings and Rating Outlooks to Regatta VI Funding, Ltd./LLC:
--$3,000,000 class X notes 'AAA(EXP)sf'; Outlook Stable;
--$252,000,000 class A notes 'AAA(EXP)sf'; Outlook Stable.
Fitch does not expect to rate the class B-1, B-2, C, D, E or subordinated notes.
Regatta VI Funding Ltd. (the issuer) and Regatta VI Funding LLC (the co-issuer) constitute an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Regatta Loan Management LLC. Net proceeds from the issuance of the secured notes and subordinated securities will be used to purchase a portfolio of approximately $400 million primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37% for 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 class A notes is in line with the average CE of recent CLO issuances. Class X notes are ultimately expected to be paid in full primarily from the application of interest proceeds via the interest waterfall.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is approximately 'B+/B', which is comparable with recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class X and A notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes are projected to be able to withstand default rates of up to 100% and 63.3%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 97.3% first lien senior secured loans. Approximately 91.1% 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 77.2%. In determining the class X and A note 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 stresses, resulting in a 38% recovery rate 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 X and A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios were consistently 'AAAsf' for the class X notes and ranged between 'A+sf' and 'AAAsf' for the class A notes.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investor's on Fitch's website at 'fitchratings.com'.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
The publication of a representations, warranties and enforcement mechanisms appendix is not required for this transaction.
Additional information is available at www.fitchratings.com.
Sources of Information:
Sources of information used to assess this rating were provided by the arranger (Morgan Stanley & Co. LLC) and the public domain.
Regatta VI Funding, Ltd./LLC
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. 12 Nov 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Dodd-Frank Rating Information Disclosure Form