Fitch Ratings assigns the following rating and Rating Outlook to GT Loan Financing I, Ltd.:
--$110,000,000 class A notes 'AAAsf'; Outlook Stable.
GT Loan Financing I, Ltd. (the issuer) is an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by GoldenTree Asset Management, LP (GoldenTree). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $190 million of primarily senior secured leveraged loans. The CLO is initially expected to invest in new-issue loans from the primary market and will have a four-year reinvestment period, ending in October 2017.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 42.1% for class A notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in an 'AAAsf' stress scenario. The degree of CE available to class A notes is above average for recent CLO issuances.
'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 a highly speculative 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 projected to be able to withstand default rates of up to 67%.
Strong Recovery Expectations: The indicative portfolio consists of 98.8% first lien senior secured loans, of which approximately 92.4% have either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher.
Portfolio Parameters: Most of the concentration limitations and collateral quality test levels are within the range of limits set in the majority of recent CLOs. However, GT Loan Financing I, Ltd. is expected to maintain a somewhat more concentrated portfolio in terms of unique obligors than other recent CLOs, and also permits higher industry concentration levels than most recent CLOs. Fitch accounted for the higher expected concentrations in the Fitch stressed portfolio analysis.
Low Degree of Ramp-Up at Close: As a result of the focus on new-issue loans the portfolio was only 14.9% ramped by the closing date, with the arranger expecting the target par amount to be ultimately purchased within five or six months. Fitch reviewed the traded portfolio as of the closing date and believes that the characteristics of these loans are in line with the expected composition of the portfolio at the effective date in terms of credit quality, average spread, and projected diversification. Fitch views the risk of interest shortfalls associated with a slow ramp-up as being mitigated by several factors, including an expected $1.5 million interest reserve amount that will be available to cover any interest shortfalls on the first payment date. Fitch expects that this amount would be sufficient to completely cover class A interest even if no interest proceeds were received from the collateral. Fitch also expects to receive an interim report during the ramp-up period to help Fitch monitor the portfolio's risk characteristics as the portfolio takes shape.
Fitch evaluated 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. Fitch expects the class A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+' and 'AAAsf' for the class A 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.
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 email@example.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 co-placement agent, GreensLedge Capital Markets, LLC, and the public domain.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions' (Jan. 25, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013).
Applicable Criteria and Related Research:
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
- Security Upgrades & Downgrades
- Fitch Ratings
Robert Rhein, +1-312-606-2314
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Christine Choo, +1-212-908-0603
Derek Miller, +1-312-368-2076
Sandro Scenga, +1-212-908-0278