CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to the class X and class A notes of Race Point VIII CLO, Limited/Corp. (Race Point VIII CLO, the issuer):
--$4,000,000 class X notes 'AAAsf'; Outlook Stable;
--$310,000,000
class A notes 'AAAsf'; Outlook Stable.
The ratings are based upon the credit quality, seniority, and composition of the portfolio of assets along with credit enhancement available to the notes through subordination, the application of excess spread, and other structural protection features. In Fitch's view, the ratings of the class X and A notes are unlikely to be adversely affected by foreseeable levels of defaults.
The class X and A notes perform strongly in Fitch's cash flow modeling scenarios, as displayed by their resilience in stressed scenarios featuring default levels of up to 100% and 63.9%, respectively, and with average recoveries as low as 36.9% in an 'AAAsf' stress scenario. Fitch's stressed portfolio and rating sensitivity analysis will be discussed in the new issue report that will be available shortly at www.fitchratings.com.
Race Point VIII CLO is an arbitrage, cash flow collateralized loan obligation (CLO) that will be managed by Sankaty Advisors, LLC. The net proceeds from the note issuance will be invested in an approximately $500 million portfolio of primarily senior secured leveraged loans. The transaction features portfolio concentration limitations and degrees of credit enhancement available to the class X and A notes that are consistent with recent CLO issuance. At closing, over 77% of the portfolio has been purchased, with the remainder identified but not yet traded. Fitch anticipates the portfolio to have an average credit quality of 'B/B-' following settlement of all identified investments.
Race Point VIII CLO has a four-year reinvestment period, scheduled to end in February 2017. Discretionary sales are permitted at any time and are limited to 25% of the portfolio balance on an annual basis. The manager will be permitted to sell defaulted, credit-risk, and credit-improved assets at any time, including after the reinvestment period. Subject to certain limitations, unscheduled principal proceeds and proceeds from credit-risk sales may be reinvested after the reinvestment period.
The portfolio concentration limitations include a maximum 7.5% allowance for assets rated 'CCC+' or below (as defined by S&P) and a 10% total maximum exposure to second lien loans, unsecured loans, and bonds. The transaction's initial maximum weighted average life covenant of 8.0 years steps down with the passage of time. As with most other recent CLOs rated by Fitch, the asset manager has the flexibility to select the required levels of various collateral quality tests, such as the minimum weighted average spread and weighted average recovery rate.
The class X and A notes have been assigned a Stable Outlook due to Fitch's expectation of stable performance through anticipated levels of default and the various forms of credit enhancement available to the notes.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
The sources of information used to assess these ratings were the transaction documents and other materials provided by the arranger, Morgan Stanley, and the public domain.
Applicable Criteria & Related Research:
--'Global Structured
Finance Rating Criteria' (June 6, 2012);
--'Global Rating Criteria
for Corporate CDOs' (Aug. 8, 2012);
--'Global Criteria for Cash
Flow Analysis in CDOs' (Sept. 13, 2012);
--'Criteria for Interest
Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);
--'Counterparty
Criteria for Structured Finance Transactions' (May 30, 2012).
Applicable Criteria and Related Research:
Counterparty Criteria for
Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678938
Criteria
for Interest Rate Stresses in Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535
Global
Criteria for Cash Flow Analysis in CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518
Global
Rating Criteria for Corporate CDOs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683910
Global
Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923
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