OREANDA-NEWS. July 14, 2015. Fitch Ratings expects to assign the following ratings to KKR CLO 12 Ltd./LLC:

--\\$206,000,000 class A-1A notes 'AAAsf'; Outlook Stable;
--\\$0 class A-1B notes 'AAAsf'; Outlook Stable;
--\\$50,000,000 class A-1 loans 'AAAsf'; Outlook Stable.

Fitch does not expect to rate the class B-1, B-2, C, D, E, or subordinated notes.

TRANSACTION SUMMARY

KKR CLO 12 Ltd. (the issuer) and KKR CLO 12 LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by KKR Financial Advisors II, LLC (KFA). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately \\$400 million of leveraged loans. The CLO will have an approximately 4.0-year reinvestment period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 36.0% for class A-1A and A-1B notes and A-1 loans (collectively, the class A debt), 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 the class A debt is slightly below the average for recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO debt.

'B/B' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch Ratings' opinion, the class A debt is unlikely to be affected by the foreseeable level of defaults. The class A debt is robust against default rates of up to 65.1%.

Strong Recovery Expectations: The indicative portfolio consists of 97.3% first-lien senior secured loans. Approximately 95.5% 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 76.9%. In determining the class A debt 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 KKR 12 class A debt assumed a 38.0% 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 recovery rates and increases in default rates or correlation. Fitch expects the class A debt 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 debt.

DUE DILIGENCE USAGE

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