Fitch Rates OZLM XIII, Ltd./LLC
--\\$209,900,000 class A-1a notes 'AAAsf'; Outlook Stable;
--\\$100,000,000 class A-1 loans 'AAAsf'; Outlook Stable;
--\\$0 class A-1b notes 'AAAsf'; Outlook Stable;
--\\$10,000,000 class A-1c notes 'AAAsf'; Outlook Stable;
Fitch does not rate the class A-2, B, C, D, E or subordinated notes.
TRANSACTION SUMMARY
OZLM XIII, Ltd. and OZLM XIII, LLC (together, OZLM XIII) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Och-Ziff Loan Management LP (Och-Ziff). Net proceeds from the issuance of the notes and incurrence of the class A-1 loans will be used to purchase collateral to reach a target portfolio of approximately \\$500 million of primarily senior-secured leveraged loans. The CLO will have an approximately five-year reinvestment period and a three-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for class A-1 loans and class A-1a, A-1b and A-1c notes (all together, the class A-1 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 class A-1 debt is slightly below the average for recent CLO issuances.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is better than that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, class A-1 debt is unlikely to be affected by the foreseeable level of defaults. Class A-1 debt is robust against default rates of up to 59.2%.
Strong Recovery Expectations: The indicative portfolio consists of 95% senior-secured loans. Approximately 87.8% of the indicative portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, and the base case recovery assumption is 74.9%. In determining ratings for class A-1 debt, 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 36.1% 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-1 loans and class A-1a, A-1b and A-1c notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A-sf' and 'AAAsf' for the four classes of debt.
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