Fitch Rates Venture XXIV CLO, Limited/LLC
--$129,000,000 class A-1D notes 'AAAsf'; Outlook Stable;
--$79,000,000 class A-1P notes 'AAAsf'; Outlook Stable;
--$30,000,000 class A-F notes 'AAAsf'; Outlook Stable;
--$50,000,000 class A-2a loans 'AAAsf'; Outlook Stable;
--$36,000,000 class A-2a notes 'AAAsf'; Outlook Stable;
--$14,000,000 class A-2b notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C-1, C-F, D-1, D-2, E and subordinated notes.
Fitch is withdrawing the class B-F notes expected rating as it is no longer included in the final structure.
Venture XXIV CLO, Limited (the issuer) and Venture XXIV CLO, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by MJX Asset Management LLC. Net proceeds from the issuance of the debt will be used to purchase a portfolio of approximately $525 million of primarily senior-secured leveraged 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 44.6% for the class A-2a loans and notes (collectively, class A-2a debt) and 35.6% for class A-1D, A-1P (collectively class A-1 notes), class A-F and A-2b notes, in addition to excess spread, are sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The level of CE available to class A-2a debt is above, while that of class A-1,
A-F and A-2b notes are below, the average for recent 'AAAsf' CLO issuances. Additionally, cash flow modeling results for these classes indicate performance in line with other 'AAAsf' Fitch-rated CLO debt.
'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch Ratings' opinion, class A-1, A-F and A-2b notes, and class A-2a debt are unlikely to be affected by the foreseeable level of defaults. Class A-2a debt and class A-1, A-F and A-2b notes are robust against default rates of up to 74.9% and 67.6%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 99.9% first lien senior secured loans. Approximately 94.8% 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 78.9%. In determining the ratings for class A-1, A-F and A-2b notes and A-2a debt, 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 37.0% 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-2a debt and class A-1, A-F and A-2b notes 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 A-2a debt and 'AAsf' and AAAsf for the class A-1, A-F and A-2b notes.
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.