Fitch Rates ALM XVI, Ltd./LLC
--\\$715,000,000 class A-1 senior secured floating rate notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2, B, C-1, C-2, D, E, preferred shares or the delayed-draw notes corresponding to each class.
ALM XVI, Ltd. and ALM XVI, LLC (together, ALM XVI, or the issuer) comprise 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 the notes and preferred shares will be used to purchase assets to reach a target portfolio of approximately \\$1.1 billion of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.0% for class A-1 notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The degree of CE available to class A-1 notes is lower than 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 comparable to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality. However, in Fitch's opinion, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are robust against default rates of up to 59.4%.
Strong Recovery Expectations: The indicative portfolio consists of 97.6% first-lien senior-secured loans. Approximately 92.2% 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 77.4%. In determining the ratings for class A-1 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 ALM XVI class A-1 notes assumed a 39.3% recovery rate in Fitch's 'AAAsf' scenario.
Fitch evaluated 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 A-1 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf'.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available to investors on Fitch's website at 'www.fitchratings.com'.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.