News Column

Fitch Rates ARES XXXI CLO Ltd./LLC

August 28, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings assigns the following ratings to ARES XXXI CLO Ltd./LLC:

--$759,900,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$136,900,000 class A-2 notes 'AAsf'; Outlook Stable;

--$75,700,000 class B notes 'Asf'; Outlook Stable;

--$46,250,000 class C notes 'BBBsf'; Outlook Stable;

--$57,500,000 class D notes 'BBsf'; Outlook Stable.

Fitch does not rate the subordinated notes.

TRANSACTION SUMMARY

ARES XXXI CLO Ltd. and ARES XXXI CLO LLC (together, ARES XXXI, or the issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Ares CLO Management XXXI, L.P., a wholly owned subsidiary of Ares Management LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $1.25 billion of primarily senior-secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) available to the notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the respective rating stress scenarios. The level of CE for each class of notes is above the average CE for notes in the same respective rating categories in recent CLO issuances.

'B' Asset Quality: The average credit quality of the indicative portfolio is approximately 'B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote highly speculative credit quality; however, in Fitch's opinion, each class of rated notes is projected to perform with sufficient robustness against default rates commensurate with its applicable rating stress.

Strong Recovery Expectations: The indicative portfolio consists of 96% first-lien senior-secured loans. Approximately 87.8% 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 75.5%. In determining the notes' ratings, 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 stress assumptions. For example, the analysis of the class A-1 notes assumed a 36.5% recovery rate in Fitch's 'AAAsf' scenario.

Consistent Portfolio Parameters: The concentration limitations and collateral quality test levels 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 the Fitch stressed portfolio analysis.

RATING SENSITIVITIES

Fitch evaluated the structure's sensitivity to the potential variability of key model assumptions, including decreases in recovery rates and increases in default rates or correlation. Fitch expects the class A-1 and class A-2 notes to remain investment grade, while classes B, C, and D are generally expected to remain within two rating categories, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and 'AAAsf' for the class A-1 notes, between 'BBB+sf' and 'AAAsf' for the class A-2 notes, between 'BBsf' and 'AA+sf' for the class B notes, between 'B-sf' and 'AA+sf' for the class C notes, and between a level below 'CCCsf' and 'A+sf' for the class D notes. The results of these scenarios remain consistent with the assigned ratings.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly to investors on Fitch's website 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 'webmaster@fitchratings.com'.

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

The sources of information used to assess these ratings were the transaction documents provided by the arranger, J.P. Morgan Securities LLC, and the public domain.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 23, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725537

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=860075

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

Robert Rhein

Director

+1-312-606-2314

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Joseph Farfsing

Associate Director

+1-312-368-3346

or

Committee Chairperson

Kevin Kendra

Managing Director

+1-212-908-0760

or

Media Relations

Alyssa Castelli, New York, +1-212-908-0540

alyssa.castelli@fitchratings.com

Source: Fitch Ratings


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