Fitch Rates Avery Point VII CLO, Limited

MILAN & NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings to Avery Point VII CLO, Limited/Corp.:

--$232,000,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$20,000,000 class A-2 notes 'AAAsf'; Outlook Stable.

Fitch does not rate the class B, C, D, E, F, subordinated notes or the delayed draw notes corresponding to each class of secured notes.

TRANSACTION SUMMARY

Avery Point VII CLO, Limited (issuer) and Avery Point VII CLO, Corp. (co-issuer), together, Avery Point VII, comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Sankaty Advisors, LP (Sankaty). Net proceeds will be used to purchase assets to reach a target portfolio of approximately $400 million of leveraged loans. The CLO will have an approximately five-year reinvestment period and three-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 37.0% for class A-1 and A-2 notes (together, the class A notes), 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 notes is in line with the average for recent CLO issuances.

'B' Asset Quality: The average credit quality of the indicative portfolio is '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 A notes are unlikely to be affected by the foreseeable level of defaults. Class A notes are robust against default rates of up to 67.1%.

Strong Recovery Expectations: The indicative portfolio consists of 98.4% senior secured loans. Approximately 91.9% of the indicative portfolio has strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, and the base case recovery assumption is 78.1%. In determining the ratings for the class A 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 38.6% recovery rate assumption in Fitch's 'AAAsf' scenario.

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 notes and class A-2 notes 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 and A-2 notes.

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'.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

The publication of a RW&Es appendix is not required for this transaction.

Additional information is available at www.fitchratings.com.

Sources of Information:

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

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

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

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Global Rating Criteria for CLOs and Corporate CDOs (pub. 12 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873664

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997231

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997231

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151222005750/en/

Fitch Ratings
Primary Analyst
Pasquale Giordano, CFA
Director
+39 02 879 087 263
Fitch Italia - Societa Italiana per Il Rating S.p.A.
Via Morigi, 6 - Ingresso Via Privata Maria Teresa, 8
20123 Milan
or
Secondary Analyst
Erika Tsang, CFA
Director
+1-212-908-0817
or
Committee Chairperson
Derek Miller
Senior Director
+1-312-368-2076
or
Media Relations:
Peter Fitzpatrick, +44 20 3530 1103, London
[email protected]

Source: Fitch Ratings

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