Fitch Rates Octagon Loan Funding, Ltd./LLC

Fitch Ratings assigns the following ratings to Octagon Loan Funding, Ltd./LLC:

--$2,500,000 class X senior secured floating rate notes 'AAAsf'; Outlook Stable;

--$202,000,000 class A-1 senior secured floating rate notes 'AAAsf'; Outlook Stable;

--$50,000,000 class A-2 senior secured floating rate notes 'AAAsf'; Outlook Stable.

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

TRANSACTION SUMMARY

Octagon Loan Funding, Ltd. (the issuer) and Octagon Loan Funding, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Octagon Credit Investors, LLC. Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $400 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 37% for class A-1 and A-2 (together, class A) notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to class A notes is slightly lower than the average CE of recent CLO issuances. Class X notes are expected to be paid in full with interest proceeds by the fourth payment date.

'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B,' which represents somewhat higher credit quality compared to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class X and A notes are unlikely to be affected by the foreseeable level of defaults. Class X and A notes are projected to be able to withstand default rates of up to 100% and 63.7%, respectively.

Strong Recovery Expectations: The indicative portfolio consists of 93.5% senior secured loans. Approximately 91% 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 73.8%. In determining ratings for 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 35% 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 X notes to remain 'AAAsf' and the class A notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AA-sf' and 'AAAsf' for the class A notes.

The sources of information used to assess these ratings were the transaction documents provided by the arranger, GreensLedge Capital Markets LLC, and the public domain. Key Rating Drivers and Rating Sensitivities are further detailed 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 'webmaster@fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria & Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'Global Rating Criteria for Corporate CDOs' (July 25, 2014);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 23, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

Counterparty Criteria for Structured Finance and Covered Bonds

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=874594

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