Fitch Affirms Ares XXXI CLO Ltd.; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings affirms five classes of notes issued by Ares XXXI CLO Ltd. (Ares XXXI). The Rating Outlook remains Stable. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERSThe transaction performed within expectations at initial rating analysis. Sufficient credit enhancement available to the notes and the cash flow model results support affirmation of all notes despite several defaults since Fitch's last rating action. As of the June 2016 trustee report, the transaction is passing all coverage tests and collateral quality tests.

The loan portfolio par amount plus principal cash is approximately $1.25 billion. As of June 2016, the weighted average spread (WAS) as reported by the trustee is 3.99% versus a minimum WAS trigger of 3.85%, The Fitch weighted average rating factor remains unchanged at 'B' since the closing date. Fitch currently considers 5.5% of the collateral (excluding cash) to be rated in the 'CCC' category based on Fitch's Issuer Default Rating (IDR) Equivalency Map. The loan portfolio is invested in 97.9% senior secured loans and 2.1% second lien loans, and approximately 82.9% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.

The Stable Outlook on each class of notes of Ares XXXI reflects the expectation that the notes have sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio.

RATING SENSITIVITIES

The ratings of the notes may be sensitive to the following: asset defaults, portfolio migration, including assets being downgraded to 'CCC', portions of the portfolio being placed on Rating Watch Negative, overcollateralization (OC) or interest coverage (IC) test breaches, and breaches of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of Ares XXXI, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.

Initial Key Rating Drivers and Rating Sensitivity are further described in the Rating Action Commentary (RAC) published on Aug. 28, 2014.

Ares XXXI is an arbitrage cash flow collateralized loan obligation (CLO) that closed on Aug. 28, 2014 and is managed by Ares CLO Management XXXI, LP (Ares), a wholly owned subsidiary of Ares Management LLC.

This review was conducted under the framework described in the report 'Global Rating Criteria for CLOs and Corporate CDOs' using Fitch's Portfolio Credit Model (PCM) to project future default and recovery levels for the underlying portfolio. These default and recovery levels were then utilized in Fitch's cash flow model under various combinations of default timing and interest rate stress scenarios, as described in the report. The cash flow model was customized to reflect the transaction's structural features.

DUE DILIGENCE USAGENo third party due diligence was reviewed in relation to this rating action.

Fitch has affirmed the following ratings:

--$759,900,000 class A-1 notes at 'AAAsf'; Outlook Stable;--$136,900,000 class A-2 notes at 'AAsf'; Outlook Stable;--$75,700,000 class B notes at 'Asf'; Outlook Stable;--$46,250,000 class C notes at 'BBBsf'; Outlook Stable;--$57,500,000 class D notes at 'BBsf'; Outlook Stable.

Fitch does not rate the subordinated notes.

Additional information is available at www.fitchratings.com.

Sources of Information:The information used to assess these ratings was sourced from periodic servicer reports, note valuation reports, and the public domain.

Applicable CriteriaCounterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963Criteria 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=879815Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Jun 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882840Global Structured Finance Rating Criteria (pub. 27 Jun 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

Related ResearchARES XXXI CLO Ltd./LLC - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=780668

Additional DisclosuresDodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009578Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009578Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160727006653/en/

Fitch Ratings
Primary Analyst
Nazneen Kutty
Associate Director
+1-312-368-3217
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Committee Chairperson
Alina Pak
Senior Director
+1-312-368-3184
or
Media Relations
Sandro Scenga, New York, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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