Fitch Rates TICP CLO V 2016-1, LTD./LLC; Publishes New Issue Report
OREANDA-NEWS. Fitch Rates TICP CLO V 2016-1, LTD./LLC; Publishes New Issue Report New York Fitch Ratings has assigned the following ratings to TICP CLO V 2016-1, LTD./LLC:
--$240,000,000 Class A Notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B-1, B-2, C, D-1, D-2, E or the subordinated notes.
TRANSACTION SUMMARY
TICP CLO V 2016-1, LTD. (the issuer) and TICP CLO V 2016-1, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by TICP CLO V 2016-1 Management, LLC, a wholly owned subsidiary of TPG Institutional Credit Partners, LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $400 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 40.0% for the class A 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 notes is above the average CE of recent CLO issuances, and cash flow modeling results indicate performance in line with other Fitch-rated 'AAAsf' CLO notes.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is approximately 'B+/B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch Ratings' opinion, the class A notes are unlikely to be affected by the foreseeable level of defaults. The class A notes are projected to be able to withstand default rates of up to 64.5%.
Strong Recovery Expectations: The indicative portfolio consists of 99.0% first-lien senior secured loans. Approximately 89.9% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, resulting in a base case recovery assumption of 78.5%. In determination of the class A notes ratings, 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 34.8% recovery rate assumption in Fitch's 'AAAsf' scenario.
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 notes to remain investment grade even under the most extreme sensitivity scenarios, with results under these sensitivity scenarios ranging between 'A+sf' and 'AAAsf'.
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' in order to support note ratings of up to 'AAAsf'. The issuer's account holder, U. S. Bank National Association, 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) expect 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 National Association's long-term and short-term ratings currently meet this expectation. Therefore, the rating for class A notes remains achievable under Fitch's existing criteria.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which is available to investors on Fitch's website at 'www. 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.
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