Fitch Expects to Rate Carlyle Global Market Strategies CLO 2015-4, Ltd./LLC; Issues Presale Report
--$321, 600,000 class A-1 notes 'AAA(EXP)sf'; Outlook Stable.
Fitch does not expect to rate the class A-2, B, C, or D notes or the subordinated notes.
Carlyle Global Market Strategies CLO 2015-4, Ltd. (the issuer) and Carlyle Global Market Strategies CLO 2015-4, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Carlyle Investment Management L.L.C. (CIM). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 million of primarily senior secured leveraged loans. The CLO will have a five-year reinvestment period and a three-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.7% for the class A-1 notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to the class A-1 notes is lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' CLO notes.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is slightly better than that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. The class A-1 notes are projected to be able to withstand default rates of up to 59.8%.
Strong Recovery Expectations: The indicative portfolio consists of 97.3% first-lien senior secured loans. Approximately 92% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, and the base case recovery assumption is 77.8%. In determining the rating of the 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. Analysis of the class A-1 notes assumed a 37.5% recovery rate 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 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 notes.
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.