OREANDA-NEWS. Fitch Ratings expects to assign the following ratings and Rating Outlooks to Monroe Capital MML CLO 2016-1, Ltd./LLC:

--$158,000,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$10,000,000 class A-2 notes 'AAAsf'; Outlook Stable;

--$30,750,000 class B notes 'AAsf'; Outlook Stable;

--$18,000,000 class C notes 'Asf'; Outlook Stable.

Fitch does not assign expected ratings to the class D-1, D-2 or E notes or the subordinated notes.

The assignment of the expected ratings on class A-1 and A-2 (collectively, class A), class B and class C notes is contingent on the receipt of final documents conforming to information already reviewed.

TRANSACTION SUMMARY

Monroe Capital MML CLO 2016-1, Ltd. and Monroe Capital MML CLO 2016-1, LLC (together, Monroe 2016-1) comprise a middle-market (MM) collateralized loan obligation (CLO) that will be managed by Monroe Capital Management LLC (Monroe Capital). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately $300 million of primarily MM loans. The CLO will have an approximately four-year reinvestment period and two-year noncall period.

RATING RATIONALE

Fitch's analysis focuses primarily on a Fitch stressed portfolio constructed in accordance with the expected initial point on the Fitch test matrix. The stressed portfolio at this matrix point accounts for many of the worst-case portfolio concentrations permitted by the indenture. Cash flow modeling of the Fitch stressed portfolio indicates performance in-line with the assigned ratings for each class of Fitch-rated notes in our standard cash flow scenarios.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) available to the notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the respective rating stress scenarios. The degree of CE available to each class of notes is in line with the average CE of notes at the same rating level in Fitch-rated MM CLO issuances over the last year.

'B/B-' Asset Quality: Fitch expects the credit quality of the underlying obligors to primarily fall in the 'B/B-' range. Fitch's base case analysis centered on a portfolio with a Fitch weighted average rating factor (WARF) of 42, in accordance with the initial expected matrix point. The analysis indicated each class of Fitch-rated notes is projected to be sufficiently robust against projected default rates in line with its applicable rating stress.

Strong Recovery Expectations: The transaction requires a minimum of 95% of the portfolio to consist of first-lien senior secured loans, cash and eligible investments, while portfolio management is governed in part by a Fitch weighted average recovery rate (WARR) test. In Fitch's base case analysis, the agency adjusted the WARR of the portfolio to reach the base case minimum trigger of 76%, and further reduced recovery assumptions for higher rating stress scenarios. The base case analysis of class A, B and C notes assumed recovery rates of 38.1%, 46.5% and 50.8% in each class's respective rating scenario.

FITCH ANALYSIS

Analysis was conducted on a Fitch stressed portfolio, which was created by Fitch and designed to address the impact of the most prominent risk-presenting concentration allowances and targeted initial Fitch test matrix point to ensure that the transaction's expected performance is in line with the ratings assigned.

The Fitch stressed portfolio was assumed to consist of $300 million par amount of MM loans. Notable portfolio concentrations specified by the transaction documents include:

--Minimum 95% first-lien senior secured loans, cash and eligible investments;

--Maximum 5% second lien loans and senior unsecured loans;

--Maximum 3% concentration for each of the top five obligors; no others greater than 2.5%;

--Maximum 17.5% assets rated 'CCC+' and below (by Fitch);

--Maximum 5% fixed-rate obligations;

--Maximum industry concentrations: 17.5% for two industries, 15% for one industry, and no others greater than 12%.

Portfolio management will be governed in part by a Fitch test matrix, which includes various combinations of permitted weighted average spread (WAS), WARF, and WARR covenants from which the manager may choose; the manager may also linearly interpolate between any two adjacent points. Fitch constructed a Fitch stressed portfolio based on the targeted initial permitted WARF, WAS, and WARR combination to ensure the projected cash flow performance of the class A, B and C notes at this matrix point remained consistent with the assigned ratings.

The initial targeted matrix point features WARF, WAS and WARR triggers of 42, 5.25% and 76%, respectively; analysis of this portfolio is herein referred to as the base case analysis.

The portfolio presented to Fitch consists of both broadly syndicated loans (BSL) and MM loans. Given the expected transition to primarily MM loans over time, Fitch constructed the Fitch stressed portfolio based on characteristics typically seen in MM loan portfolios. Compared with BSL portfolios, MM loan portfolios generally contain fewer obligors; therefore the Fitch stressed portfolio consisted of 80 unique obligors to account for relatively greater obligor concentration in MM CLOs.

To further account for potentially greater obligor concentration Fitch stressed the maximum permitted sizes of the largest 10 obligors, as opposed to its standard stress of maximizing the largest five obligors in its analysis of CLOs comprised of BSLs. Fitch also maximized the permitted industry concentrations for the three largest industries and assumed the maximum permitted portfolio weighted average life of eight years when creating the Fitch stressed portfolio.

The Fitch stressed portfolio was constructed to reach the minimum WARR threshold at the base case matrix point of 76%. Since Fitch expects to issue recovery ratings (RRs) on a significant portion of the portfolio, a majority of the stressed portfolio consisted of assets with Fitch RRs. These assets with RRs comprised 60% of the target portfolio par amount. The remaining assets in the portfolio were assumed to have "strong" recovery prospects. While the Fitch stressed portfolio typically maximizes the permitted portion of non-first-lien positions by assigning either "weak" or RR6 recoveries to such assets, modeling analysis indicated that the portfolio consisting of only RR2, RR3 and "strong" recoveries was more conservative than assuming a more varied distribution of RRs from RR1 to RR6. Fitch used the more conservative approach in its construction of the stressed portfolio.

Fitch tested both a 100% floating-rate portfolio and a portfolio of 95% floating-rate assets and 5% fixed-rate assets. Floating-rate assets were assumed to pay 5.25% over LIBOR and fixed-rate assets were assumed to pay a 7.5% coupon, both in line with the initial covenanted levels as represented by the arranger to Fitch. The portfolio of 100% floating-rate assets generally displayed lower breakeven levels and was therefore considered to be the Fitch stressed portfolio.

The Fitch Portfolio Credit Model (PCM) was used to determine hurdle default rates (rating default rates, or RDRs) and expected portfolio recovery rates (rating recovery rates, or RRRs) for the Fitch stressed portfolio. The base case Fitch stressed portfolio PCM default rate and recovery rate outputs were 73.8% and 38.1%, respectively, at the 'AAAsf' rating level, 69.3% and 46.5%, respectively, at the 'AAsf' rating level and 63.0% and 50.8%, respectively, at the 'Asf' rating level.

Fitch used a customized proprietary cash flow model to replicate the principal and interest waterfalls, as well as the various structural features of the transaction and to assess their effectiveness, including the structural protection provided by excess spread diverted through the overcollateralization (OC) tests and interest coverage (IC) tests. The cash flow model was run using the PCM output of the Fitch stressed portfolio.

Fitch's cash flow modeling of the stressed portfolio considered nine stress scenarios to account for different combinations of three default timings and three interest rate stresses. When analyzing the base case Fitch stressed portfolio, the class A, B and C notes passed the PCM hurdle rate at each of their assigned rating levels in all nine stress scenarios with minimum cushions of 4.7%, 4.4% and 2.7%, respectively.

Fitch was comfortable assigning the expected ratings to class A, B and C notes because it believes the notes can sustain a robust level of defaults, combined with low recoveries, at their respective rating levels. Fitch also considered other factors such as the strong performance of each class of notes in the sensitivity scenarios.

To assign final ratings to the transaction, Fitch will test the permitted combinations on the Fitch Test Matrix to ensure the projected cash flow performance of each class of notes remains consistent with the expected ratings assigned.

RATING SENSITIVITIES

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 and B notes to remain investment grade, while class C notes are expected to remain within two rating categories of their assigned ratings, 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, between 'BBBsf' and 'AA+sf' for the class B notes and between 'BBsf' and A+sf' for the class C notes. We consider the results of these sensitivity scenarios as consistent with the assigned ratings.

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, as well as the issuer's governing documents, 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' by Fitch in order to support note ratings of up to 'AAAsf'. The issuer's account holder, Deutsche Bank Trust Company Americas (DBTCA; rated

'A-/F1'/Stable Outlook), 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) expects that a direct counterparty role is fulfilled by an institution with a Long-Term Rating of at least 'A' and a Short-Term Rating of at least 'F1' to support note ratings of up to 'AAAsf'. DBTCA's Long-Term Rating does not meet this expectation, but is sufficient to support note ratings up to the 'AAsf' rating category under the existing criteria. If the proposed counterparty criteria is not adopted and the existing counterparty criteria is maintained, Fitch would expect additional mitigants (such as a daily cash sweep to an eligible institution) in order to maintain a 'AAAsf' rating on the class A-1 and A-2 notes; otherwise the ratings on the class A-1 and A-2 notes may be limited to the 'AAsf' category. The ratings on the class B and C notes are achievable under Fitch's existing counterparty criteria.

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

PERFORMANCE ANALYTICS

Fitch will monitor the transaction regularly and as warranted by events with a review. Events that may trigger a review include, but are not limited to, the following:

--Asset defaults;

--Portfolio migration;

--OC or IC test breach;

--Breach of concentration limitations or portfolio quality covenants;

--Future changes to Fitch's rating criteria.

Surveillance analysis is conducted on the basis of the then-current portfolio. Fitch's goal is to ensure that the assigned ratings remain an appropriate reflection of the issued notes' credit risk.

VARIATIONS FROM CRITERIA

Fitch analyzed the transaction in accordance with its CLO rating criteria, as described in its June 2016 report, 'Global Rating Criteria for CLOs and Corporate CDOs'.

The Fitch stressed portfolio for this transaction was not created using the indicative portfolio as a basis. Rather, it was created to account for certain unique features of the transaction. Instead of starting with the initial indicative portfolio and making adjustments thereto, the Fitch stressed portfolio for this transaction represents an entirely hypothetical portfolio constructed by Fitch. Fitch created a new portfolio based upon the concentration limitations and collateral quality tests. This application resulted in a minor and more conservative impact on PCM output compared with the standard application of criteria.

In construction of the Fitch stressed portfolio the agency maximized the size of the top 10 obligors to their covenanted levels rather than stressing the five largest, as is customary with Fitch's analysis of broadly syndicated CLOs in the U. S. This application resulted in a minor and more conservative impact on PCM output compared with the standard application of criteria.

In constructing the Fitch stressed portfolio, Fitch adjusted the ratings on the portfolio obligors to meet the maximum WARF threshold at the base case matrix point of 42. In addition to the maximum Fitch WARF test, the transaction also has a concentration limitation to address permitted exposure to assets rated 'CCC+' and below by Fitch (as well as a similar concentration limitation for Moody's ratings), with a 17.5% permissible 'CCC' bucket. While the 'CCC' bucket is typically maximized in the Fitch stressed portfolio, this stressed portfolio consisted of assets with ratings of either 'B-' (93.7%) or 'CCC' (6.3%); modeling analysis showed that this distribution was a slightly more conservative assumption than maximizing the permitted 'CCC' bucket and offsetting the WARF by including higher rated assets. This is a more conservative assumption and resulted in a minor impact on PCM output compared with the standard application of criteria.

In its cash flow analysis, Fitch applied a flat amortization profile over five years (20 payment periods), evenly distributed around the maximum permissible WAL. Modeling analysis indicated this to be a more conservative assumption than assuming bullet maturities. This assumption had a minor impact versus the standard application of criteria.

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.