OREANDA-NEWS. Fitch Ratings assigns the following ratings and Rating Outlooks 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-1L loans,'AAAsf'; Outlook Stable.

Fitch does not 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) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by KKR Financial Advisors II, LLC (KKR). 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.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for the class A-1A notes, A-1B notes and A-1L loans (collectively, the class A-1 debt), 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 class A-1 debt is slightly below the average CE of recent CLO issuances.

'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is comparable to recent CLOs. Issuers rated in the 'B' category denote a highly speculative 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 projected to be able to withstand default rates of up to 65.80%.

Strong Recovery Expectations: The indicative portfolio consists of 97.3% first lien loans. Approximately 95.5% 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 77.90%. In determining the class A-1 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 stresses, resulting in a 38.6% 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-1A notes, A-1B notes and A-1L loans (collectively, the class A-1 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-1 debt.

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.