Fitch Expects to Rate Mill Creek CLO II Ltd./LLC; Issues Presale

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings expects to assign the following ratings and Rating Outlooks to Mill Creek CLO II Ltd./LLC:

-- $196,500,000 class A notes 'AAA(EXP)sf'; Outlook Stable;

-- $29,100,000 class B notes 'AA(EXP)sf'; Outlook Stable;

-- $12,000,000 class C notes 'A(EXP)sf'; Outlook Stable;

-- $18,000,000 class D notes 'BBB-(EXP)sf'; Outlook Stable.

Fitch does not expect to rate the class E notes or subordinated notes.

TRANSACTION SUMMARY

Mill Creek CLO II, Ltd. (the issuer) and Mill Creek CLO II, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by CreekSource LLC (CreekSource). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $300 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and two-year non-call period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) available to the notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in the respective rating stress scenarios. The degree of CE available to the class A notes is lower than the average CE of recent CLO issuances; however, cash flow modelling indicates performance in line with other 'AAAsf' rated CLO notes. The degree of CE available to the class B notes is in line with the average CE of recent CLO issuances, while the degree of CE available for the class C and D notes is above average for notes in the same respective rating categories in recent CLO issuances.

'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is slightly better than that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, each class of rated notes is projected to be sufficiently robust against default rates in line with its applicable rating stress.

Strong Recovery Expectations: The indicative portfolio consists of 100% first lien senior secured loans. Approximately 97.1% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher and the base case recovery assumption is 81.6%. In determining the ratings for each class of 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 stress assumptions. The recovery rates for the class A, B, C and D notes used in the analysis of Mill Creek CLO II are 42.9%, 52.0%, 56.9%, and 63.4%, respectively. These stress recovery levels are higher than the average recovery assumptions for recent CLOs.

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, while classes B, C, and D notes are generally expected to remain within three rating categories of their assigned ratings, even under the most extreme sensitivity scenarios.

Results under these sensitivity scenarios ranged between 'Asf' and 'AAAsf' for the class A notes, between 'BB+sf' and 'AA+sf' for the class B notes, between 'BB-sf' and 'A+sf' for the class C notes, and between a level below 'CCCsf' and 'BBBsf' for the class D notes.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available to investor's on Fitch's website at 'fitchratings.com'.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Additional information is available at www.fitchratings.com.

Sources of Information:

Sources of information used to assess these ratings were provided by the arranger, Goldman Sachs & Co. and the public domain.

Mill Creek CLO II, Ltd./LLC

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877491

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

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

Related Research

MILL CREEK CLO II, LTD./LLC Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=877541

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999055

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999055

Endorsement Policy

https://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/20160204006305/en/

Fitch Ratings
Primary Analyst
Cristina Jennings
Associate Director
+1-312-606-2300
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Aaron Hughes
Director
+1-312-368-2074
or
Committee Chairperson
Derek Miller
Senior Director
+1-312-368-2076
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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