Fitch Rates York CLO-2 Ltd./LLC
-- \\$320,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E or subordinated notes.
York CLO-2 Ltd. (issuer) and York CLO-2 LLC (co-issuer), together, York 2, comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by York CLO Managed Holdings, LLC (York). Net proceeds will be used to purchase assets to reach a target portfolio of approximately \\$500 million of 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 36% for 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; 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 notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are robust against default rates of up to 60.2%.
Strong Recovery Expectations: The indicative portfolio consists of 95.7% senior secured loans. Approximately 88.2% of the indicative portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, and the base case recovery assumption is 76.1%. In determining the ratings 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 38.5% 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 'Asf' and 'AAAsf' for the class A notes.