Fitch to Rate JFIN CLO 2016 LTD./LLC; Issues Presale Report

LONDON & NEW YORK--()--Fitch Ratings expects to assign the following ratings and Rating Outlooks to JFIN CLO 2016 LTD./LLC:

--$165,500,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$16,500,000 class A-2a notes 'AAAsf'; Outlook Stable;

--$10,000,000 class A-2b notes 'AAAsf'; Outlook Stable;

--$30,000,000 class A-F notes 'AAAsf'; Outlook Stable.

Fitch does not expect to rate the class B-1, B-F, C, D, E, senior subordinated notes, or junior subordinated notes.

TRANSACTION SUMMARY

JFIN CLO 2016 LTD. (the issuer) and JFIN CLO 2016 LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Apex Credit Partners LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $350 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year non-call period.

KEY RATING DRIVERS

Sufficient Credit Enhancement (CE): CE of 60.5% for class A-2a notes and 36.6% for class A-1, A-2b and A-F notes (together, 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-2a notes is well above the average CE of recent CLO issuances, while the CE available for the class A1, A-2b and A-F notes is in line with the average CE of recent CLO issuances. Cash flow modelling results indicate 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's opinion, class A notes are unlikely to be affected by the foreseeable level of defaults. Class A-2a notes are robust against default rates of up to 83.1%, while class A-1, A-2b and A-F notes are robust against default rates of up to 64.6%.

Strong Recovery Expectations: The indicative portfolio consists of 99% first lien senior secured loans. Approximately 88.5% 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 78.5%. In determining the class 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.

RATING SENSITIVITIES

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. The class A-2a notes remained 'AAAsf' under all sensitivity scenarios. Results for the class A-1, A-2b and A-f notes ranged between 'BBB+sf' and 'AAAsf' under these sensitivity scenarios.

Fitch published an exposure draft of its Counterparty Criteria for Structured Finance and Covered Bonds on April 14, 2016. The exposure draft serves as the operable criteria report for this ratings analysis. The transaction currently also conforms to Fitch's existing counterparty criteria (dated May 14, 2014). Therefore, there would be no impact to expected ratings should the proposed criteria not be adopted.

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 these ratings were provided by the arranger (Jefferies LLC) and the public domain.

JFIN CLO 2016 LTD./LLC

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883312

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815

Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412

Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880522

Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882840

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008311

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008311

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Vincent Scalvenzi, +44 20 3530 1653
Director
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst
Amy Drobish, +1-212-908-9194
Director
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Vincent Scalvenzi, +44 20 3530 1653
Director
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst
Amy Drobish, +1-212-908-9194
Director
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com