Fitch Rates Recette CLO, Ltd./LLC

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings to Recette CLO, Ltd./LLC:

--$185,000,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$100,000,000 class A-2 notes 'AAAsf'; Outlook Stable;

--$40,000,000 class A-L loans 'AAAsf'; Outlook Stable;

--$0 class A-C notes 'AAAsf'; Outlook Stable.

Fitch does not rate the class B-1, B-2, C, D, E, F or subordinated notes.

TRANSACTION SUMMARY

Recette CLO, Ltd. (issuer) and Recette CLO, LLC (co-issuer), together, Recette CLO, comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Invesco Senior Secured Management, Inc. (Invesco). Net proceeds from the issuance of secured debt and subordinated notes will be used to purchase assets to reach a target portfolio of approximately $500 million of primarily senior-secured leveraged 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) of 35% for class A-1, A-2 and A-C notes and class A-L loans (collectively, 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 below the average CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other 'AAAsf' Fitch-rated CLO notes.

'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is slightly better relative to recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, class A debt is unlikely to be affected by the foreseeable level of defaults. The class A debt is robust against default rates of up to 65.5%.

Strong Recovery Expectations: The indicative portfolio consists of 96.9% senior-secured loans, of which about 91.3% have strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher, and the base case recovery assumption is 77.4%. In determining the ratings for class A debt, 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 39.2% 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, A-2 and A-C notes and the class A-L loans to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and 'AAAsf' for these four classes of debt.

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, Merrill Lynch, Pierce, Fenner & Smith Incorporated, 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. 30 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868908

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=990878

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990878

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/20150916006514/en/

Fitch Ratings
Primary Analyst
Erika Tsang, CFA
Director
+1-212-908-0817
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Engin Inci
Associate Director
+1-212-908-0772
or
Committee Chairperson
Derek Miller
Senior Director
+1-312-368-2076
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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