OREANDA-NEWS. Fitch Ratings expects to assign the following ratings and Rating Outlooks to Galaxy XXII CLO, Ltd./LLC:

--$256,400,000 class A notes 'AAAsf'; Outlook Stable;

--$44,800,000 class B notes 'AAsf'; Outlook Stable.

Fitch does not expect to rate the class C, D, E or F notes or the subordinated notes.

TRANSACTION SUMMARY

Galaxy XXII CLO, Ltd. (the issuer) and Galaxy XXII CLO, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by PineBridge Investments LLC (PineBridge). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $400 million of 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 35.9% for the class A notes and 24.7% for the class B notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' and 'AAsf' stress scenarios, respectively. Compared with CE levels of recent CLO issuances for notes in the same respective rating categories, the degrees of CE available to the class A and B notes are in line with the averages.

'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 Ratings' opinion, class A and B notes are unlikely to be affected by the foreseeable level of defaults. Class A and B notes are projected to be able to withstand default rates of up to 58.0% and 54.4%, respectively.

Strong Recovery Expectations: The indicative portfolio consists of 96.8% first-lien senior secured loans. Approximately 86.1% 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 78.7%. In determining the class A and B 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 38.2% and 46.2% recovery rates in Fitch's 'AAAsf' and 'AAsf' scenarios, respectively.

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 and B notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf' for the class A notes and between 'BBB-sf' and 'AA+sf' for the class B notes.

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 operative criteria report for this ratings analysis. Under the exposure draft, a direct support counterparty is expected to maintain a long-term rating of at least 'A' or a short-term rating of at least 'F1' in order to support note ratings of up to 'AAAsf'. The issuer's account holder, U. S. Bank National Association, satisfies the minimum expected ratings threshold for a direct support counterparty under the exposure draft framework.

Fitch's existing counterparty criteria (dated May 2014), as well as the issuer's governing documents, expect this role to be fulfilled by an institution with a long-term rating of at least 'A' and a short-term rating of at least 'F1'. U. S. Bank's long-term and short-term ratings currently meet these expectations. Therefore, the ratings for the class A and B notes remain achievable under Fitch's existing criteria.

The framework regarding expectations for eligible investments has not materially changed between the existing criteria and the exposure draft.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.