Fitch to Rate Dryden 41 Senior Loan Fund/LLC; Issues Presale
--\\$320,750,000 class A notes 'AAAsf'; Outlook Stable;
--\\$57,600,000 class B notes 'AAsf'; Outlook Stable.
Fitch does not expect to rate the class C, D, E, F, or subordinated notes.
TRANSACTION SUMMARY
Dryden 41 Senior Loan Fund (the issuer) and Dryden 41 Senior Loan Fund LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Prudential Investment Management, Inc. (Prudential). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately \\$500 million leveraged loans. The CLO will have a reinvestment period of about four years.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.9% for class A notes and 24.3% for class B notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' and the 'AAsf' stress scenarios, respectively. The level of CE available for the class A and B notes is lower than the average CE for recent 'AAAsf' and 'AAsf' CLO issuances, respectively.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is slightly better than that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality. However, in Fitch's opinion, the class A and B notes are unlikely to be affected by the foreseeable level of defaults. The class A and B notes are robust against default rates of up to 56.9% and 53.4%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 95.6% first lien senior secured loans. Approximately 89.7% 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 ratings for class A and B 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 stress assumptions resulting in recovery rates of 38.1% and 46.3% in Fitch's 'AAAsf' and 'AAsf' scenarios, respectively.
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 notes to remain investment grade and the class B notes to remain within three rating categories of its assigned expected rating even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A-sf' and 'AAAsf' for the class A notes and 'BB+sf' and 'AAsf' for the class B notes.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investors on Fitch's website at 'www.fitchratings.com'.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
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