Fitch to Rate Ares XLIX CLO Ltd.; Issues Presale.
--$290,000,000 class A-1 notes 'AAA(EXP)sf'; Outlook Stable.
--$35,000,000 class A-2 notes 'AAA(EXP)sf'; Outlook Stable.
Fitch does not expect to rate the class B, C, D, E and the subordinated notes.
Ares XLIX CLO Ltd. (the issuer) comprises an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Ares CLO Management LLC, a subsidiary of Ares Management LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $500 million of primarily first-lien, senior-secured loans. The CLO will have an approximately 4.9-year reinvestment period and a 1.9-year noncall period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 42% for class A-1 notes and 35% for the class A-2 notes, in addition to excess spread, are sufficient to protect against portfolio default and recovery rate projections in the 'AAAsf' stress scenario. The level of CE for the class A-1 notes is above the average CE of recent CLO issuances, and the level of CE for the class A-2 notes is below such average. Cash flow modeling results for both classes indicate performance in line with other 'AAAsf' Fitch-rated CLO notes.
'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-1 and A-2 notes are unlikely to be affected by the foreseeable level of defaults. The class A-1 and A-2 notes are projected to be able to withstand default rates of up to 64.5% and 59.3%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 97.5% first-lien, senior-secured loans. Approximately 92.1% 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 80.1%. In determining the rating for class A-1 and A-2 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 38.9% 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-1 and A-2 notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios were between 'AA-sf' and 'AAAsf' for the class A-1 notes and between 'A+sf' and 'AA+sf' for the class A-2.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investor's on Fitch's website at 'fitchratings.com' or by clicking on the link.
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 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 28, 2018|
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