OREANDA-NEWS. Fitch Ratings expects to assign the following rating and Rating Outlook to OZLM XII, Ltd./LLC:

--\$317,500,000 class A-1 notes 'AAAsf'; Outlook Stable.

Fitch does not expect to rate the class A-2, B, C, D or E notes or the subordinated notes.

The assignment of the expected ratings is contingent on the receipt of final documents conforming to information already reviewed.

TRANSACTION SUMMARY

OZLM XII, Ltd. (issuer) and OZLM XII, LLC (co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Och-Ziff Loan Management LP (Och-Ziff). Fitch's Funds and Asset Manager Ratings team has evaluated Och-Ziff and determined its capabilities to be acceptable for purposes of managing this transaction. 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 an approximately three-year non-call period.

RATING RATIONALE

Fitch's analysis focuses primarily on a Fitch-stressed portfolio, which 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 the class A-1 notes in Fitch's standard cash flow scenarios.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 36.5% for class A-1 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-1 notes is in line with the average for recent CLO issuances.

'B+/B' Asset Quality: The average credit quality of the intended ramped portfolio (the indicative portfolio) is 'B+/B', which is slightly better compared to recent CLOs. Issuers rated in the 'B' rating category denote highly speculative credit quality; however, in Fitch's opinion, 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 59.8%.

Strong Recovery Expectations: The indicative portfolio consists of 95.1% first-lien senior secured loans. Approximately 87.4% 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 74.6%. In determining the ratings for 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 stresses resulting in a 34.9% recovery rate assumption in Fitch's 'AAAsf' scenario.

FITCH ANALYSIS

The Fitch-stressed portfolio was assumed to consist of \$500 million par amount of loans, 90% of which represented senior secured loans and 10% second-lien loans. Notable portfolio concentrations specified by the transaction documents include:

--Minimum 90% senior secured loans and eligible investments;
--Maximum 10% second-lien loans and unsecured loans;
--Maximum 10% bonds, secured bonds and senior secured floating-rate notes (only if the permitted securities condition is satisfied);
--Maximum 2.5% concentration for the top five largest obligors, and no others greater than 2.0%;
--Maximum 7.5% assets rated 'Caa1' by Moody's and below;
--Maximum 5.0% fixed-rate assets;
--Maximum 70% cov-lite loans;
--Maximum industry concentrations: 15% for the largest S&P industry, 12% for the second largest S&P industry, and no others greater than 10%;
--Maximum 10% assets that pay less frequently than quarterly.

Maximum obligor concentrations were assumed for the top five senior secured loans. Fitch also maximized the permitted industry concentrations for the three largest industries and assumed the maximum permitted portfolio weighted average life of nine years when creating the Fitch-stressed portfolio.

Fitch considers 1.6% of the indicative portfolio to be rated in the 'CCC' category, according to Fitch's Issuer Default Rating (IDR) Equivalency Map. The transaction allows for a 7.5% concentration limitation of 'CCC' rated collateral (as defined by Moody's). The exposure to 'CCC' assets in the Fitch-stressed portfolio was subsequently increased to reach the 7.5% concentration limitation.

The Fitch-stressed portfolio is also composed of 95% floating-rate assets and 5.0% fixed assets. The arranger indicated the expected initial minimum weighted average spread (WAS) of the portfolio will be 3.9%, so Fitch assumed that all floating-rate assets earn 3.9% over LIBOR, without accounting for LIBOR floors. Fitch also assumed fixed-rate assets will earn a coupon of 7.5%, which the arranger has represented as the minimum weighted average coupon of the portfolio. Finally, the Fitch-stressed portfolio assumed that 10% of the underlying assets pay interest semiannually.

Projected default and recovery statistics of the Fitch-stressed portfolio were generated using Fitch's portfolio credit model (PCM). The PCM default rate and recovery rate outputs for the 'AAAsf' rating stress were 61.9% and 34.9%, respectively.

Fitch's cash flow modeling considered 12 stress scenarios to account for different combinations of four default timings and three interest rate stresses. Fitch assumed that the class A-1 notes earned a spread over three-month LIBOR of 1.45%, based on pricing information provided by the arranger. The class A-1 notes passed the 'AAAsf' PCM hurdle rate in 10 of the 12 stress scenarios, with two marginal failures of 1.4% and 2.1% below the threshold. Fitch was comfortable assigning an expected 'AAAsf' to the class A-1 notes because the agency believes the notes can sustain a robust level of defaults, combined with low recoveries, as well as other factors such as strong performance of the notes in the sensitivity scenarios, the degree of cushion when analyzing the indicative portfolio, and Och-Ziff's track record as a CLO asset manager.

Fitch also analyzed the indicative portfolio, which included 129 loans from 116 obligors accounting for 79.8% of the target portfolio amount, and 20 unidentified assets with assumed characteristics constituting the remaining 20.2% of the indicative portfolio. The 'AAAsf' PCM default rate and recovery rate outputs of the indicative portfolio were 51.1% and 37.6%, respectively, and the minimum breakeven cushion in the cash flow analysis for class A-1 notes was 11.4%.

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 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf' for the class A-1 notes.

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.

An assessment of the transaction's representations and warranties was also completed and found to be consistent with the ratings assigned to the certificates. For further information, see 'OZLM XII, Ltd./LLC -- Appendix', dated April 21, 2015.

The expected ratings are based on information provided to Fitch as of April 20, 2015. Sources of information used to assess these ratings were provided by the arranger, J.P. Morgan Securities LLC, and the public domain.