Fitch to Rate THL Credit Wind River 2016-2 CLO Ltd./LLC; Issues Presale
--$320,000,000 class A notes 'AAAsf', Outlook Stable.
Fitch does not expect to rate the class B, C, D, E-1, E-2 or subordinated notes.
THL Credit Wind River 2016-2 CLO Ltd. (the issuer) and THL Credit Wind River 2016-2 CLO LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by THL Credit Advisors LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 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% for the 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 the class A notes is in line with the average CE for recent CLO issuances.
'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's opinion, the class A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are robust against default rates of up to 63.4%
Strong Recovery Expectations: The indicative portfolio consists of 97.8% first lien senior secured loans. Approximately 95.2% 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 80.5%. In determining the rating for the 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 stresses, resulting in a 38.6% 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. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A notes.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investor's on Fitch's website at 'fitchratings. com'.
USE OF THIRD-PARTY DUE DILIGENCE PUSUANT 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.