LONDON & NEW YORK--(BUSINESS WIRE)--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.
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.
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
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. 17 May 2016)
Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)
Fitch's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File (pub. 17 May 2016)
Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Jun 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Dodd-Frank Rating Information Disclosure Form