Fitch Rates NewStar Commercial Loan Funding 2016-1 LLC

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings and Ratings Outlooks to NewStar Commercial Loan Funding 2016-1 LLC:

--$176,500,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$20,000,000 class A-2 notes 'AAAsf'; Outlook Stable.

Fitch does not rate the class B, C, D, or E notes or the membership interests.

TRANSACTION SUMMARY

NewStar Commercial Loan Funding 2016-1 LLC (the issuer) is a middle-market (MM) collateralized loan obligation (CLO) that will be managed by NewStar Financial, Inc. (NewStar). Net proceeds from the issuance of the secured notes and membership interests will be used to purchase a portfolio of $350 million of MM loans. The CLO will have an approximately four-year reinvestment period and two-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 43.9% for class A-1 and class A-2 notes (collectively, class A notes), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. CE is significantly higher than the levels typically seen on broadly syndicated CLOs and in line with levels seen on recent Fitch-rated MM CLOs.

'B/B-' Asset Quality: Fitch Ratings expects the credit quality of the underlying obligors to primarily fall in the 'B/B-' range. Fitch's base case analysis centered on a portfolio with a weighted average rating factor (WARF) of 43, in accordance with the initial expected matrix point. The analysis on such portfolio, in addition to analysis on the other permitted matrix points, indicated the class A notes demonstrate cash flow performance in line with other 'AAAsf' CLO notes. In the base case analysis, class A notes are projected to withstand default rates of up to 76.6%.

Strong Recovery Expectations: The transaction requires a minimum of 90% of the portfolio to consist of senior secured loans, cash and eligible investments, while portfolio management is governed in part by a Fitch weighted average recovery rate (WARR) test. In its base case analysis of the class A notes, Fitch adjusted the WARR of the portfolio to reach the base case minimum trigger of 71.5%, and further reduced recovery assumptions for higher rating stress scenarios. The base case analysis of class A notes assumed a 37.2% recovery rate 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. In the base case analysis, Fitch expects the class A-1 and class A-2 notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A-1 and class A-2 notes.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly to investors on Fitch's website at 'www.fitchratings.com'.

DUE DILIGENCE USAGE

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

The publication of a RW&Es appendix is not required for this transaction.

Additional information is available at www.fitchratings.com.

Sources of Information:

Sources of information used to assess these ratings were provided by the arranger (Wells Fargo Securities, LLC), the collateral manager (NewStar) 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. 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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1000296

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000296

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/20160302006285/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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