Fitch Rates Highbridge Loan Management 6-2015, Ltd./LLC; Publishes New Issue Report
--\$4,000,000 class X notes 'AAAsf'; Outlook Stable;
--\$320,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D, E-1, E-2, F, or subordinated notes.
TRANSACTION SUMMARY
Highbridge Loan Management 6-2015, Ltd. (the issuer) and Highbridge Loan Management 6-2015 LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Highbridge Principal Strategies, LLC (HPS). 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.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an 'AAAsf' stress scenario. The degree of CE available to class A notes is below the average CE of recent CLO issuances, however, cash flow analysis shows that projected performance of the class A notes is in line with other Fitch-rated CLOs. Class X notes are ultimately expected to be paid in full from the application of interest proceeds via the interest waterfall.
'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which represents similar credit quality to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class X and A notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes are projected to be able to withstand default rates of up to 100% and 60.2%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 96.1% first lien senior secured loans. Approximately 91.2% 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 76.8%. In determining the class X and 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 stress assumptions. The analysis of class X and A notes assumed a 36.8% recovery rate in Fitch's 'AAAsf' scenario.
RATING SENSITIVITIES
In addition to Fitch's stated criteria, the agency analyzed 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 X and A 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 notes. The class X notes passed at the 'AAAsf' rating level in all tested sensitivity scenarios.
The sources of information used to assess these ratings were provided by the arranger, Morgan Stanley & Co. LLC, and the public domain.
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.
For more information about Fitch's comprehensive subscription service FitchResearch, which includes all presale reports, surveillance and credit reports on more than 20 asset classes, contact product sales at +1-212-908-0800 or at 'webmaster@fitchratings.com'.
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