Fitch to Rate Sound Point CLO XI, Ltd./LLC; Issues Presale

Fitch Ratings expects to assign the following rating to Sound Point CLO XI, Ltd./LLC:

--$322,500,000 class A notes 'AAAsf'; Outlook Stable.

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

TRANSACTION SUMMARY

Sound Point CLO XI, Ltd. (the issuer) and Sound Point CLO XI, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) managed by Sound Point Capital Management, LP. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of $500 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 35.5% 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 below the average CE of recent 'AAAsf' CLO notes; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.

'B+' Asset Quality: The average credit quality of the indicative portfolio is 'B+'; this is a relatively higher average credit quality than recent CLOs, where the average credit quality is typically closer to 'B'. 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 63.7%.

Strong Recovery Expectations: The indicative portfolio consists of 97.9% first-lien senior secured loans. Approximately 95.4% 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 77.9%. In determining the class A 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 stresses, resulting in a 38.6% recovery rate 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 notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AAsf' and 'AAAsf' for the class A notes.

Fitch published an exposure draft of its Counterparty Criteria for Structured Finance and Covered Bonds on April 14, 2016. The exposure draft serves as the operative criteria report for this ratings analysis. Under the exposure draft, a direct support counterparty is expected to maintain a long-term rating of at least 'A' or a short-term rating of at least 'F1' in order to support note ratings of up to 'AAAsf'. The issuer's account holder, U.S. Bank N.A., satisfies the minimum expected ratings threshold for a direct support counterparty under the exposure draft framework.

Fitch's existing counterparty criteria (dated May 14, 2014), as well as the issuer's governing documents, expects this role to be fulfilled by an institution with a long-term rating of at least 'A' and a short-term rating of at least 'F1'. U.S. Bank's long-term rating currently meets this expectation. Therefore, the rating recommendation for class A notes remains achievable under Fitch's existing criteria.

The framework regarding expectations for qualified investments has not materially changed between the existing criteria and the exposure draft.

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 (Credit Suisse Securities (USA) LLC) and the public domain.

Sound Point CLO XI, Ltd./LLC (US Structured Credit)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880633

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

Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412

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=1003678

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003678

Endorsement Policy

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

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