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Fitch Rates KKR CLO 21 Ltd./LLC; Issues New Issue Report.

New York: Fitch Ratings has assigned the following rating and Rating Outlook to KKR CLO 21 Ltd./LLC:

--$390,000,000 class A notes 'AAAsf'; Outlook Stable.

Fitch does not rate the class B, C, D, E or F notes or the subordinated notes.


KKR CLO 21 Ltd. (the issuer) and KKR CLO 21 LLC (the co-issuer) comprise a collateralized loan obligation (CLO) that will be managed by KKR Financial Advisors II, LLC (KFA). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $600 million of primarily first lien, senior secured loans. The CLO will have an approximately five-year reinvestment period and a two-year noncall period.


Sufficient Credit Enhancement: Credit enhancement (CE) of 35% 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 level of CE for the class A notes is below the average CE of recent 'AAAsf' CLO notes; however, cash flow modeling indicates performance in line with other CLO notes rated 'AAAsf' by Fitch.

'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, the class A notes are unlikely to be affected by the foreseeable level of defaults. The class A notes are projected to be able to withstand default rates of up to 61.8%.

Strong Recovery Expectations: The indicative portfolio consists of 97.5% first lien senior secured loans and 2.5% second lien loans. Approximately 91.1% 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 81%. In determining the rating for class A 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 stresses, resulting in a 40.9% 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 A notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AAAsf' and 'A+sf' for the class A notes.


Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.


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 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:Jul 3, 2018
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