Halcyon 2014-1 is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 37.8% for class A-1 and A-2 notes and class A loans (together, class A debt), 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 class A debt is in line with the average for recent CLO issuances. Class X notes are ultimately expected to be paid in full from the application of interest proceeds via the interest waterfall.
'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 relatively weak credit quality; however, in Fitch's opinion, class X notes and class A debt are unlikely to be affected by the foreseeable level of defaults. Class X notes and class A debt are robust against default rates of up to 85.1% and 63.8%, respectively.
Strong Recovery Expectations: The indicative portfolio consists of 98.4% senior secured loans, of which about 95.9% 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 addressing various loan characteristics. The concentration limitations 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.
In addition to Fitch's stated criteria, the agency analyzed 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. The class X notes are expected to remain at 'AAAsf' and the class A debt is expected to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A-1 debt.
The expected ratings are based on information provided to Fitch as of
The presale report is available to investors on Fitch's web site at www.fitchratings.com. For more information about Fitch's comprehensive subscription service FitchResearch, which includes all presale reports, surveillance and credit reports on more than 20 asset classes, contact product sales at +1-212-908-0800 or at 'firstname.lastname@example.org'.
Additional information is available at 'www.fitchratings.com'.
--'Global Structured Finance Rating Criteria' (
--'Global Rating Criteria for Corporate CDOs' (
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (
--'Counterparty Criteria for Structured Finance and Covered Bonds' (
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Interest Rate Stresses in Structured Finance Transactions
Global Rating Criteria for Corporate CDOs
Global Structured Finance Rating Criteria
Source: Fitch Ratings
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