Fitch to Rate Betony CLO, Ltd./LLC; Issues Presale
--\$3,000,000 class X notes 'AAAsf'; Outlook Stable;
--\$320,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-DD, B, B-DD, C, C-DD, D, D-DD, E, E-DD, F, F-DD or subordinated notes.
Betony CLO, Ltd. (the issuer) and Betony CLO, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Invesco Senior Secured Management, Inc. (Invesco). Net proceeds from the issuance of secured and subordinated notes will be used to purchase assets to reach a target portfolio of approximately \$500 million of primarily senior-secured leveraged loans. The CLO will have a four-year reinvestment 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 the 'AAAsf' stress scenario. The level of CE for class A notes is below the average for recent CLO issuances. Class X notes are expected to be paid in full from interest proceeds on the second payment date.
'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's opinion, class X and A notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes are robust against default rates of up to 90.4% and 62.3%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 96.5% senior-secured loans, of which about 88.1% have strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, resulting in a base case recovery assumption of 74.7%. In determining the ratings for the class X and 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 37.3% 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 X notes to remain 'AAAsf' and 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.
The expected ratings are based on information provided to Fitch as of Feb. 18, 2015. Sources of information used to assess these ratings were provided by the arranger, Morgan Stanley & Co. LLC, and the public domain. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.
The presale report is available to investors on Fitch's web site at www.fitchratings.com. For more information about Fitch's comprehensive subscription service FitchResearch, which includes all presale reports, surveillance and credit reports on more than 20 asset classes, contact product sales at +1-212-908-0800 or at 'firstname.lastname@example.org'.