Fitch Rates Monroe Capital MML CLO 2016-1, Ltd./LLC

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings and Rating Outlooks to Monroe Capital MML CLO 2016-1, Ltd./LLC:

--$158,000,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$10,000,000 class A-2 notes 'AAAsf'; Outlook Stable;

--$30,750,000 class B notes 'AAsf'; Outlook Stable;

--$18,000,000 class C notes 'Asf'; Outlook Stable;

--$20,250,000 class D-1 notes 'BBB-sf'; Outlook Stable;

--$3,000,000 class D-2 notes 'BBB-sf'; Outlook Stable.

Fitch does not rate the class E notes or the subordinated notes.

TRANSACTION SUMMARY

Monroe Capital MML CLO 2016-1, Ltd. and Monroe Capital MML CLO 2016-1, LLC comprise a middle-market (MM) collateralized loan obligation (CLO) that will be managed by Monroe Capital Management LLC (Monroe Capital). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately $300 million of primarily MM loans. The CLO will have an approximately four-year reinvestment period and 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 degree of CE available to each class of notes is in line with the average CE of notes at the same rating level in Fitch-rated MM CLO issuances over the last year.

'B/B-' Asset Quality: Fitch expects the credit quality of the underlying obligors to primarily fall in the 'B/B-' range. Fitch's base case analysis centered on a portfolio with a Fitch weighted average rating factor (WARF) of 42, in accordance with the initial expected matrix point. The analysis on such portfolio, in addition to analysis on the other permitted matrix points, indicated each class of Fitch-rated notes is projected to be sufficiently robust against projected default rates in line with its applicable rating stress.

Strong Recovery Expectations: The transaction requires a minimum of 95% of the portfolio to consist of first-lien senior secured loans, cash, and eligible investments while portfolio management is governed in part by a Fitch weighted average recovery rate (WARR) test. In Fitch's base case analysis, the agency adjusted the WARR of the portfolio to reach the base case minimum trigger of 77% and further reduced recovery assumptions for higher rating stress scenarios. The base case analysis of class A-1 and A-2 (collectively, class A) notes, class B notes, class C notes, and class D-1 and D-2 (collectively, class D) notes assumed recovery rates of 38.8%, 47.5%, 51.9%, and 59.2% in each class's respective rating 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 and B notes to remain investment grade, while class C and D notes are expected to remain within seven rating levels of their assigned ratings, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and 'AAAsf' for the class A notes, between 'BBBsf' and 'AAAsf' for the class B notes, between 'BB+sf' and A+sf' for the class C notes and between 'CCCsf' and BBB+sf' for the class D notes.

DUE DILIGENCE USAGE

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

The publication of a representations, warranties and enforcement mechanisms appendix is not required for this transaction.

Additional information is available at www.fitchratings.com.

Sources of Information:

The information used to assess these ratings was provided by the arranger (BNP Paribas Securities Corp.), Monroe Capital and the public domain.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815

Global Rating Criteria for CLOs and Corporate CDOs (pub. 28 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=885653

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009665

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009665

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/20160728006688/en/

Fitch Ratings
Primary Analyst
Joseph Farfsing, +1-312-368-3346
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Robert Rhein, +1-312-606-2314
Senior Director
or
Committee Chairperson
Christine Yoon, +1 212-908-0603
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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