Fitch to Rate ALM XVII, Ltd./LLC; Issues Presale Report
--$369,000,000 class A-1L notes 'AAAsf'; Outlook Stable;
--$18,000,000 class A-1F notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A-2L, A-2H, B-1, B-2, C-1, C-2 or D notes or the preferred shares.
TRANSACTION SUMMARY
ALM XVII, Ltd. and ALM XVII, LLC comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Apollo Credit Management (CLO), LLC (Apollo Credit). Net proceeds from the issuance of the secured notes and preferred shares will be used to purchase a portfolio of approximately $600 million of primarily senior secured leveraged loans. The CLO will have an approximately 4.5-year reinvestment period and a 2.5-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.5% for class A-1L and A-1F (collectively, class A-1) notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The degree of CE available to class A-1 notes is lower than the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.
'B/B-' Asset Quality: The average credit quality of the indicative portfolio is approximately 'B/B-', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 61.3%.
Strong Recovery Expectations: The indicative portfolio consists of 97.8% first lien loans. Approximately 93.2% 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 of 78.2%. In determining the class A-1 note rating, 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 37.0% 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 weighted average spread or recovery rates and increases in default rates or correlation. Fitch expects the class A-1 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'BBB+sf' and 'AAAsf' for the class A-1 notes.
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.
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