Fitch to Rate Recette CLO, Ltd./LLC; Issues Presale
-- \\$185,000,000 class A-1 notes 'AAAsf'; Outlook Stable;
-- \\$100,000,000 class A-2 notes 'AAAsf'; Outlook Stable;
-- \\$40,000,000 class A-L loans 'AAAsf'; Outlook Stable;
-- \\$0 class A-C notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B-1, B-2, C, D, E, F or subordinated notes.
Recette CLO, Ltd. (issuer) and Recette CLO, LLC (co-issuer), together, Recette CLO, 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 debt 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 an approximately four-year reinvestment period and two-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35% for class A-1, A-2 and A-C notes and class A-L loans (collectively, class A debt), 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 debt is below the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' Fitch-rated CLO notes.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is slightly better relative to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's' opinion, class A debt is unlikely to be affected by the foreseeable level of defaults. The class A debt is robust against default rates of up to 65.4%.
Strong Recovery Expectations: The indicative portfolio consists of 97.2% senior-secured loans, of which about 90.8% have strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, and the base case recovery assumption is 77.2%. In determining the ratings for class A 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 stresses, resulting in a 38.9% 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-1, A-2, A-C notes and the class A-L loans 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 debt.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is 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.
The publication of a RW&Es appendix is not required for this transaction.