Fitch Rates KKR CLO 15 Ltd./LLC
--$2,500,000 class X notes 'AAAsf'; Outlook Stable;
--$206,000,000 class A-1A notes 'AAAsf'; Outlook Stable;
--$0 class A-1B notes 'AAAsf'; Outlook Stable;
--$50,000,000 class A-1L loans 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E, or subordinated notes.
KKR CLO 15 Ltd. (the issuer) and KKR CLO 15 LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by KKR Financial Advisors II, LLC (KFA). Net proceeds from the issuance of debt will be used to purchase a portfolio of $400 million of primarily first-lien senior secured loans. The CLO will have an approximately four-year reinvestment period and two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for class A-1A and A-1B notes, and A-1L loans (collectively, the class A debt), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The level of CE for the class A debt is in line with the average for recent CLO issuances. Class X notes are ultimately 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 that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, the class X notes and class A debt are unlikely to be affected by the foreseeable level of defaults. The class X notes and class A debt are projected to be able to withstand default rates of up to 83.3% and 62.1%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 98.7% first-lien senior secured loans. Approximately 93.7% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, resulting in a base case recovery assumption of 80.9%. In determining the class X notes and class A debt 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 stress, resulting in a 41.5% 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 or increases in default rates or correlation. Fitch expects all rated classes of debt to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA+sf' and 'AAAsf' for the class X notes and between 'A+sf' and 'AAAsf' for the class A debt.
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 31 May 2016.