OREANDA-NEWS. May 13, 2016. Fitch Ratings expects to assign the following rating and Rating Outlook to ALM XIX, Ltd./LLC:

--\\$308,750,000 class A-1 notes 'AAA(EXP)sf', Outlook Stable.

Fitch does not expect to rate the class A-2, B, C, D or preferred shares.

TRANSACTION SUMMARY
ALM XIX, Ltd. (the issuer) and ALM XIX, LLC (the co-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 secured and preferred shares will be used to purchase a portfolio of approximately \\$475 million of primarily senior secured leveraged loans. The CLO will have a 4.6-year reinvestment period and a 2.6-year noncall period

KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35% for 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' rated CLO notes.

'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is in line with 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. Class A-1 notes are projected to be able to withstand default rates of up to 61.2%.

Strong Recovery Expectations: The indicative portfolio consists of 98.2% first lien senior secured loans. Approximately 89.8% 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 78.2%. In determining the class A-1 note rating, 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 38.2% recovery rate in Fitch's 'AAAsf' scenario.

RATING SENSITIVITIES
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 'A-sf' and 'AAAsf' for the class A-1 notes.

Fitch published an exposure draft of its Counterparty Criteria for Structured Finance and Covered Bonds on April 14, 2016. The exposure draft serves as the operative criteria report for this ratings analysis. Under the exposure draft, a direct support counterparty is expected to maintain a long-term rating of at least 'A' or a short-term rating of at least 'F1' in order to support note ratings of up to 'AAAsf'. The issuer's account holder, U.S. Bank N.A., satisfies the minimum expected ratings threshold for a direct support counterparty under the exposure draft framework.

Fitch's existing counterparty criteria (dated May 14, 2014), as well as the issuer's governing documents, expects this role to be fulfilled by an institution with a long-term rating of at least 'A' and a short-term rating of at least 'F1'. U.S. Bank, N.A. has a long-term and short-term rating that currently meets this expectation. Therefore the rating recommendation for class A-1 notes remains achievable under Fitch's existing criteria.

The framework regarding expectations for qualified investments has not materially changed between the existing criteria and the exposure draft.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investor's on Fitch's website at 'fitchratings.com'.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

The publication of a representations, warranties and enforcement mechanisms appendix is not required for this transaction.