Fitch to Rate Madison Park Funding XXII, Ltd./LLC; Issues Presale
--$516,000,000 class A notes 'AAAsf', Outlook Stable.
Fitch does not expect to rate the class B, C, D, E or subordinated notes.
Madison Park Funding XXII, Ltd. (the issuer) and Madison Park Funding XXII, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Credit Suisse Asset Management, LLC. 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 noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.5% for 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 level of CE available to class A notes is below the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.
'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 A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are projected to be able to withstand default rates of up to 60.6%.
Strong Recovery Expectations: The indicative portfolio consists of 97.4% first-lien senior secured loans. Approximately 93.4% 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 77.6%. In determining the ratings for class A notes, 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 36.7% 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, with results under these sensitivity scenarios ranging between 'A-sf' and 'AAAsf'.
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.