Fitch to Rate Avery Point VII CLO, Limited; Issues Presale
OREANDA-NEWS. Fitch Ratings expects to assign the following ratings to Avery Point VII CLO, Limited/Corp.:
--$232,000,000 class A-1 notes 'AAAsf'; Outlook Stable;
--$20,000,000 class A-2 notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D, E, F, subordinated notes or the delayed draw notes corresponding to each class of secured notes.
Avery Point VII CLO, Limited (issuer) and Avery Point VII CLO, Corp. (co-issuer), together, Avery Point VII, comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Sankaty Advisors, LLC (Sankaty). Net proceeds will be used to purchase assets to reach a target portfolio of approximately $400 million of leveraged loans. The CLO will have an approximately five-year reinvestment period and three-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37.0% for class A-1 and A-2 notes (together, 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 slightly above the average for recent CLO issuances.
'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 A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are robust against default rates of up to 65.8%.
Strong Recovery Expectations: The indicative portfolio consists of 98% senior secured loans. Approximately 94.3% 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 78.2%. 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 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 A-1 notes and class A-2 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-1 and A-2 notes.