Fitch Rates ALM XII, Ltd./LLC
-- \$6,000,000 class X notes 'AAAsf'; Outlook Stable;
-- \$492,750,000 class A-1 notes 'AAAsf'; Outlook Stable;
-- \$11,500,000 class E notes 'B-sf'; Outlook Stable.
Fitch does not rate the class A-2a, A-2b B, C-1, C-2, D, or subordinated notes.
ALM XII, Ltd. (the issuer) and ALM XII, LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Apollo Credit Management (CLO), LLC (Apollo Credit). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately \$770 million of leveraged loans. The CLO will have a four-year reinvestment period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for class A-1 notes and 6.5% for class E notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' and 'B-sf' stress scenarios, respectively. The degree of CE available to class A-1 notes is lower than the average CE of recent CLO issuances while the CE available to the class E notes is slightly above the average. Cash flow modeling indicates performance in line with other Fitch-rated CLO notes. Class X notes are expected to be paid in full from the application of interest proceeds via the interest waterfall.
'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 relatively weak credit quality. However, in Fitch's opinion, the class X, A-1 and E notes are unlikely to be affected by the foreseeable level of defaults. Class X notes are robust against default rates of up to 100%, while class A-1 and E notes are robust against default rates of up to 60.3% and 31.2%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 97.4% first lien senior secured loans. Approximately 90.3% 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 75.5%. In determining the ratings for class X, A-1 and E 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 assumptions. The analysis of the class X and A-1 notes assumed a 35.6% recovery rate in Fitch's 'AAAsf' scenario, and the analysis of class E notes assumed a 72.2% recovery rate in Fitch's 'B-sf' scenario.
In addition to Fitch's stated criteria, the agency analyzed the structure's sensitivity to the potential variability of key model assumptions including decreases in weighted average spread or recovery rates and increases in default rates or correlation. Fitch expects the class X and A-1 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios remained 'AAAsf' for the class X notes and ranged between 'Asf' and 'AAAsf' for the class A-1 notes and between a level below 'CCCsf' and 'BBsf' for the E notes.
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 new issue report, which is available on Fitch's website at 'www.fitchratings.com' or by clicking on the link.
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'.