Fitch Rates HPS Loan Management 12-2018, Ltd.; Publishes New Issue Report.
--$287,500,000 Class A1A Notes 'AAAsf'; Outlook Stable;
--$22,500,000 Class A1B Notes 'AAAsf'; Outlook Stable.
Fitch does not expect to rate the class A2, B, C, and D notes or the subordinated notes.
HPS Loan Management 12-2018, Ltd. (issuer) comprises an arbitrage cash flow collateralized loan obligation (CLO) managed by HPS Investment Partners CLO (US), LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 million of primarily first lien senior secured leveraged loans. The CLO will have a 5.1-year reinvestment period and a 2.1-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 42.5% and 38% for class A1A and A1B notes respectively, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenarios. The degree of CE available to the class A1A and A1B notes is above the average 'AAAsf' CE of recent CLO issuances.
'B+'/'B' Asset Quality: The average credit quality of the indicative portfolio is 'B+'/'B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch Ratings' opinion, class A1A and A1B notes are unlikely to be affected by the foreseeable level of defaults. Class A1A and A1B notes are projected to be able to withstand default rates of up to 69.3% and 66.2%.
Strong Recovery Expectations: The indicative portfolio consists of 98% first lien senior secured loans. Approximately 92.8% of the indicative portfolio has strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, resulting in a base case recovery assumption of 80.6%. In determining the class A1A and A1B 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 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 A1A and A1B notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AAsf' and 'AAAsf' for these notes.
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.
The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information.
Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis.
--Loan-by-loan data provided by the arranger as at June 15, 2018;
--Offering memorandum provided by the arranger as at June 21, 2018;
--Transaction indenture provided by the arranger as at June 26, 2018.
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 that relate to the underlying asset pool was not prepared for this transaction. 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. Therefore, Fitch credit reports for U.S. CLO transactions will not typically include descriptions of RW&Es. 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:||Sep 25, 2018|
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