Fitch Rates Dryden 54 Senior Loan Fund/LLC.
--$320,000,000 class A notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class B, C, D or E notes or the subordinated notes.
Dryden 54 Senior Loan Fund (the issuer) and Dryden 54 Senior Loan Fund LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by PGIM, Inc. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 million of primarily senior-secured leveraged loans. The CLO will have an approximately five-year reinvestment period and two-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for class A 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 notes is slightly below the average CE of recent CLO issuances; however, cash flow modeling results indicate performance in line with other CLO notes rated 'AAAsf' by Fitch.
'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, class A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are robust against default rates of up to 58%.
Strong Recovery Expectations: The indicative portfolio comprises 96.9% first-lien, senior-secured loans and 3.1% second-lien loans. Approximately 90.9% 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 80.2%. In determining the class A notes' 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 39.4% recovery rate assumption in Fitch's 'AAAsf' scenario.
Fitch evaluated the notes' sensitivity to the potential variability of key model assumptions, including decreases in recovery rates and increases in default rates. Fitch expects the class A 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 class A notes.
The CLO's provisions regarding the manager's ability to consent to maturity amendments on the underlying loans do not contain any conditions for compliance with the weighted average life (WAL) test. Fitch ran an additional scenario to account for the ability to consent to maturity amendments without regard to the WAL test. This sensitivity scenario assumed a 12 year WAL for the Fitch stressed portfolio. Modelling results of this scenario indicated an incremental decrease in the performance of the notes, passing at the 'AA+sf' rating level.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' below. Offering documents for U.S. CLO transactions do not typically include RW&Es that are available to investors and that relate to the asset pool underlying the security. However, the offering document of this transaction included a draft of the indenture, which contains RW&Es related to the underlying asset pool of the CLO. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 31, 2016.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Dec 27, 2017|
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