Fitch Rates Seven Sticks CLO (Secured Note), Ltd.

Fitch Ratings assigns the following rating to Seven Sticks CLO (Secured Note), Ltd.:

--$52,246,608 exchangeable secured notes 'BBB-sf', Outlook Stable.

The rating of the exchangeable secured notes addresses the ultimate receipt of the exchangeable secured note balance in accordance with the terms of the notes.

TRANSACTION SUMMARY

Seven Sticks CLO (Secured Note), Ltd. (the issuer) has issued a class of secured notes (the exchangeable secured notes) which are collateralized by a Tennessee Valley Authority (TVA) principal-only strip having a face value of $52,000,000 scheduled to mature in September 2065 (the underlying specified security) in addition to $10,000,000 of the class D notes and $33,250,000 of the subordinated notes from the Seven Sticks CLO Ltd./LLC (Seven Sticks CLO) transaction scheduled to mature in July 2028 (the underlying specified notes). The exchangeable secured noteholders are entitled to all distributions of principal and interest on the underlying components in the respective proportions thereof and amortize upon the receipt of these cash flows.

Fitch's rating of the exchangeable secured notes addresses the likelihood of ultimate repayment of the initial balance by their stated maturity date in September 2065. If the exchangeable secured note balance is repaid in full prior to September 2065, holders may elect to receive a residual secured note which would be backed by their proportionate share of the underlying collateral. Fitch's rating does not address the potential for additional distributions which could be received by such residual secured noteholders.

KEY RATING DRIVERS

Strong Credit Quality of Underlying Specified Security: The TVA principal-only strip represents the principal component from TVA global power bonds 2015 series A, which Fitch rates 'AAA', Outlook Stable. The 'AAA' rating assigned to TVA's outstanding global power bonds reflects its status as a wholly owned corporation of the U.S. Government and Fitch's expectation that repayment of the power bonds would ultimately receive the support of the U.S. Government in the event of fiscal distress. The rating on the TVA bonds is further described in Fitch's rating action commentary, 'Fitch Rates Tennessee Valley Authority's Global Power Bonds 'AAA'; Outlook Stable' dated Sept. 21, 2015, which is available to investors on Fitch's website at 'www.fitchratings.com'.

Sufficient Credit Enhancement: Credit enhancement provided by the TVA principal-only strip, the class D notes, and the subordinated notes is sufficient to protect against portfolio default and recovery assumptions in a 'BBB-sf' stress scenario.

FITCH ANALYSIS

A fundamental assumption in Fitch's cash flow analysis is that the issuer will receive full payment of the $52,000,000 face amount underlying specified security on its maturity date in September 2065.

Analysis of the underlying specified notes was conducted on both the indicative portfolio presented to Fitch for Seven Sticks CLO and its Fitch stressed portfolio, which was created to address the impact of the most prominent risk-presenting concentration allowances and collateral quality tests pursuant to Seven Sticks CLO's governing documents. The assumptions for the Fitch stressed portfolio and indicative portfolio are further described in the Seven Sticks CLO new issue report, which is available to investors on Fitch's website at 'www.fitchratings.com'.

Under a 'BBB-sf' stress, the exchangeable secured notes are expected to receive repayment of their full principal balance in conjunction with the maturity of the underlying specified security in September 2065 in both the analysis of the Fitch stressed portfolio and the indicative portfolio.

Fitch's cash flow analysis indicated the most stressful scenario for the exchangeable secured notes under a 'BBB-sf' stress occurs when interest rates remain flat and the timing of defaults is front-loaded. Under this scenario, the exchangeable secured notes and administrative expenses are paid through the application of proceeds received on the underlying components as follows:

--For the Fitch stressed portfolio analysis: $1.2 million from the underlying class D notes, $0.9 million from the underlying subordinated notes, and $52.0 million from the underlying specified security at maturity.

--For the indicative portfolio analysis: $14.3 million from the underlying class D notes, $3.0 million from the underlying subordinated notes, and $52.0 million from the underlying specified security at maturity.

Provisions within the governing documents of the exchangeable secured notes give investors the ability to take actions which could result in significantly different outcomes than those assumed by Fitch in its ratings analysis, such as selling underlying components or calling the transaction prior to maturity. Any such actions would require 100% consent from the noteholders taking such action. Fitch's rating does not address the potential impact from such investor optionality, including but not limited to potential market value risk.

RATING AGENCY CONFIRMATIONS

The transaction documents allow for the following actions, each subject to a Fitch rating confirmation among other things:

--Substitution of the initial underlying specified security;

--Full or partial sale of the underlying subordinated note component;

--Full or partial sale of the underlying specified security component;

--Additional issuance of exchangeable secured notes;

--Amendments to reduce the principal balance of the exchangeable secured notes or to provide for a stated rate of interest to accrue on the exchangeable secured notes; and/or

--Issuer direction or permission of a redemption, refinancing or repricing of the underlying specified notes.

Investors should be aware that the provision of rating confirmations is at the discretion of Fitch, which may choose not to provide rating confirmations. Further information regarding Fitch's position with respect to rating confirmations can be found in the special report titled "Unintended Consequences of Rating Confirmation References," dated Oct. 9, 2013, available on Fitch's website at www.fitchratings.com.

RATING SENSITIVITIES

Fitch evaluated the exchangeable secured notes' sensitivity to the potential variability of key model assumptions for the underlying specified notes, including decreases in recovery rates by 50% and increases in default rates up to 150% higher or double correlation, with results ranging between 'CCCsf' and 'A+sf'.

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 operable criteria report for this ratings analysis. The transaction currently also conforms to Fitch's existing counterparty criteria (dated May 14, 2014). Therefore, there would be no impact to expected ratings should the proposed criteria not be adopted.

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:

Sources of information used to assess this rating were provided by the arranger (Citigroup Global Markets Inc.) 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. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879815

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. 09 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882840

Global Rating Criteria for Single- and Multi-Name Credit-Linked Notes (pub. 08 Mar 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878513

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1008200

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008200

Endorsement Policy

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

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