OREANDA-NEWS. Fitch Ratings affirms the expected ratings and Rating Outlooks on four classes of notes to be issued by Mill Creek CLO II Ltd./LLC. The rating action reflects changes made to the structure and other transaction features since the issuance of expected ratings on Feb. 4, 2016:

--$196,500,000 class A notes at 'AAA(EXP)sf'; Outlook Stable;
--$25,500,000 class B notes at 'AA(EXP)sf'; Outlook Stable;
--$15,600,000 class C notes at 'A(EXP)sf'; Outlook Stable;
--$18,000,000 class D notes at 'BBB-(EXP)sf'; Outlook Stable.

Fitch does not expect to rate the class E notes or subordinated notes.

TRANSACTION SUMMARY

Mill Creek CLO II, Ltd. (the issuer) and Mill Creek CLO II, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by CreekSource LLC (CreekSource). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $300 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and two-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) available to the notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the respective rating stress scenarios. The degree of CE available to the class A notes is lower than the average CE of recent CLO issuances; however, cash flow modelling indicates performance in line with other 'AAAsf' rated CLO notes. The degree of CE available to the class B notes is in line with the average CE of recent CLO issuances, while the degree of CE available for the class C and D notes is above average for notes in the same respective rating categories in recent CLO issuances.

'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 a highly speculative credit quality; however, in Fitch's opinion, each class of rated notes is projected to be sufficiently robust against default rates in line with its applicable rating stress.

Strong Recovery Expectations: The indicative portfolio consists of 100% first lien senior secured loans. Approximately 96.4% 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 81.9%. In determining the ratings for each class of 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. The recovery rates for the class A, B, C and D notes used in the analysis of Mill Creek CLO II are 42.8%, 51.6%, 56.5%, and 63.1%, respectively. These stress recovery levels are higher than the average recovery assumptions for recent CLOs.

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, while classes B, C, and D notes are generally expected to remain within three rating categories of their assigned ratings, even under the most extreme sensitivity scenarios.

Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf' for the class A notes, between 'BB+sf' and 'AA+sf' for the class B notes, between 'BB-sf' and 'A+sf' for the class C notes, and between a level below 'CCCsf' and 'BBB-sf' for the class D notes.