Fitch to Rate Garrison Funding 2016-1 Ltd./LLC; Issues Presale
--$254,000,000 class A-1 notes 'AAAsf'; Outlook Stable;
--$4,000,000 class X notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-2, B, C-1, C-2, D or subordinated notes.
Garrison Funding 2016-1 Ltd. (the issuer) and Garrison Funding 2016-1 LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Garrison Funding 2016-1 Manager LLC. 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 36.5% for class A-1 notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The degree of CE available to class A-1 notes is in line with the average CE of recent CLO issuances. Class X notes are expected to be paid in full from the application of interest proceeds.
'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is in line with recent Fitch-rated CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class A-1 and X notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 and X notes are robust against default rates of up to 61.3% and 96.5%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 100.0% first lien senior secured loans. Approximately 96.5% 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 80.3%. In determining class A-1 and X note ratings, Fitch stressed the indicative portfolio by assuming a higher portfolio concentration of assets with lower recovery prospects and further reduced recovery assumptions of higher rating stress assumptions, resulting in a 38.0% recovery rate assumption 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, with results under these sensitivity scenarios ranging between 'Asf' and 'AAAsf'. The class X notes are expected to remain 'AAAsf' under even the most extreme sensitivity scenarios.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investors on Fitch's website at www. 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.