Fitch to Rate Avery Point II CLO, Ltd.; Issues Presale

Fri Jun 7, 2013 4:38pm EDT

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Fitch to Rate Avery Point II CLO, Ltd.; Issues Presale

Link to Fitch Ratings' Report: Avery Point II CLO, Limited/Corp. (US Structured Credit)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710201

Fitch Ratings expects to assign the following rating and Rating Outlook to Avery Point II CLO, Ltd.:

--$304,000,000 class A notes 'AAAsf'; Outlook Stable.

TRANSACTION SUMMARY

Avery Point II CLO, Ltd. is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Sankaty Advisors, LLC (Sankaty). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $500 million of primarily leveraged loans. The CLO will have a four-year reinvestment period, expected to end in July 2017.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 39.2% for class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an 'AAAsf' stress scenario. The level of CE for class A notes is above the average CE of recent CLOs.

'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' category denote a highly speculative credit quality. However, 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 67.8%.

Strong Recovery Expectations: The indicative portfolio consists of 95.8% senior secured loans, approximately 91.5% of which have strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher. This is in line with the seniority profile of recent vintage CLOs.

Consistent Portfolio Parameters: The portfolio will be actively managed and bound by concentration limitations and collateral quality tests addressing various loan and structural characteristics. Aside from the lack of limitation on assets that pay less frequently than quarterly, the concentration limitations and collateral quality test levels presented to date are within the range of limits set in the majority of recent CLOs. Fitch addressed the impact of the most prominent risk-presenting concentration allowances and targeted test levels in its analysis.

RATING SENSITIVITIES

Fitch evaluated the structure's sensitivity to the potential variability of key model assumptions, including decreases in weighted average spread or recovery rates and increases in default rates or correlation. Fitch expects the class A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and AAAsf' for the class A notes.

The expected ratings are based on information provided to Fitch as of June 7. Sources of information used to assess these ratings were provided by the arranger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and the public domain.

Key Rating Drivers and Rating Sensitivities are further detailed in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available at 'www.fitchratings.com'.

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 and Covered Bonds' (May 13, 2013).

Applicable Criteria and Related Research:

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683910

Global Criteria for Cash Flow Analysis in CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688518

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793183

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Erika Tsang, CFA, +1 212-908-0817
Director
Fitch Ratings, Inc., One State Street Plaza, New York, NY 10004
or
Secondary Analyst
Robert Rhein, +1 312-606-2314
Director
or
Committee Chairperson
Derek Miller, +1 312-368-2076
Senior Director
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

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