Fitch Ratings assigns the following ratings to Octagon Investment Partners XXI, Ltd./LLC:
--$159,000,000 class A-1A senior secured floating rate notes 'AAAsf'; Outlook Stable;
--$322,200,000 class A-1B senior secured floating rate notes 'AAAsf'; Outlook Stable.
Fitch does not rate the class A-2, B, C, D, E or subordinated notes.
TRANSACTION SUMMARY
Octagon Investment Partners XXI, Ltd. (the issuer) and Octagon Investment Partners XXI, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by Octagon Credit Investors, LLC (Octagon). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $750 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period and a two-year non-call period.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 35.8% for class A-1A and A-1B (together, class A-1) 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-1 notes is below the average CE of recent CLO issuances.
'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B,', which is in line with recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 58.2%.
Strong Recovery Expectations: The indicative portfolio consists of 96.4% senior secured loans. Approximately 93.7% 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 76.2%. In determining ratings for class A-1 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 A-1 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf'.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, available at 'www.fitchratings.com' or by clicking on the above link. The sources of information used to assess these ratings were the transaction documents provided by the arranger, Citigroup Global Markets Inc., and the public domain.
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: Octagon Investment Partners XXI, Ltd./LLC
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=805568
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=912014
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Contacts:
Primary Analyst:
Erika Tsang, CFA,
+1-212-908-0817
Director
Fitch Ratings, Inc.
33 Whitehall
Street
New York, NY 10004
or
Secondary Analyst:
Engin
Inci, +1-212-908-0772
Associate Director
or
Committee
Chairperson:
Derek Miller, +1-312-368-2076
Senior Director
or
Sandro
Scenga, +1-212-908-0278
Media Relations, New York
sandro.scenga@fitchratings.com