Fitch Rates Madison Park Funding XXI, Ltd./LLC; Publishes New Issue Report

CHICAGO--()--Fitch Ratings has assigned the following ratings and Ratings Outlooks to Madison Park Funding XXI, Ltd./LLC:

--$516,000,000 Class A-1 Notes 'AAAsf'; Outlook Stable;

--$30,000,000 Combination Securities ' A-sf'; Outlook Stable.

Fitch does not rate the class A-2, B, C, D, or subordinated notes. The combination securities consist of underlying components from the class A-2, B and subordinated notes. The rating of the combination securities addresses the ultimate receipt of the combination securities balance in accordance with the terms of the securities and the underlying classes of notes.

TRANSACTION SUMMARY

Madison Park Funding XXI, Ltd. (the issuer) and Madison Park Funding XXI, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Credit Suisse Asset Management, LLC (CSAM). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $800 million of primarily senior secured leveraged loans. The CLO will have an approximately five-year reinvestment period and two-year non-call period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 35.5% for class A-1 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-1 notes is below the average CE of recent 'AAAsf' CLO notes; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes. With respect the combination securities, CE provided by the class A-2, B, and subordinated notes is sufficient to protect against portfolio default and recovery assumptions in a 'A-sf' stress scenario.

'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch Ratings' opinion, the class A-1 notes and the combination securities 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 64.4% and the combination securities are expected to receive repayment of their full principal balance from the application of principal and interest proceeds from the underlying components.

Strong Recovery Expectations: The indicative portfolio consists of 96.4% first lien senior secured loans. Approximately 92.7% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher and the base case recovery assumption is 77.4%. In determining the ratings for class A-1 notes and the combination securities, 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, resulting in a 40.1% recovery rate assumption in Fitch's 'AAAsf' scenario and 53.4% in Fitch's 'A-sf' scenario.

RATING SENSITIVITIES

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 A-1 notes to remain investment grade, while the combination securities are expected to remain within two rating categories of their assigned rating, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A-1 notes, and between 'BBsf' and 'AAAsf' for the combination securities.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which is available to investor's on Fitch's website at 'fitchratings.com'.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction. Offering documents for U.S. CLO transactions do not typically include RW&Es that are available to investors and that relate to the asset pool underlying the security. Therefore, Fitch credit reports for U.S. CLO transactions will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated May 31, 2016.

Additional information is available at www.fitchratings.com.

Sources of Information:

The sources of information used to assess these ratings were the arranger (Citigroup Global Markets Inc.) and the public domain.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)
https://www.fitchratings.com/site/re/884963

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)
https://www.fitchratings.com/site/re/879815

Global Rating Criteria for CLOs and Corporate CDOs (pub. 28 Jul 2016)
https://www.fitchratings.com/site/re/885653

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130

Related Research

Madison Park Funding XXI, Ltd./LLC
https://www.fitchratings.com/site/re/886849

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010821

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010821

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

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Contacts

Fitch Ratings
Primary Analyst
Associate Director
Cristina Jennings, +1-312-606-2300
or
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Director
Aaron Hughes, +1-312-368-2074
or
Committee Chairperson
Managing Director
Derek Miller, +1-312-368-2076
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Associate Director
Cristina Jennings, +1-312-606-2300
or
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Director
Aaron Hughes, +1-312-368-2074
or
Committee Chairperson
Managing Director
Derek Miller, +1-312-368-2076
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com