Fitch Rates Vibrant CLO IV, Ltd./LLC; Publishes New Issue Report

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings to Vibrant CLO IV, Ltd./LLC:

--$236,000,000 class A-1 notes 'AAAsf'; Outlook Stable;

--$24,000,000 class A-2 notes 'AAAsf'; Outlook Stable.

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

TRANSACTION SUMMARY

Vibrant CLO IV, Ltd. (the issuer) and Vibrant CLO IV, LLC (the co-issuer) together comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by DFG Investment Advisors, Inc. Net proceeds from the issuance of secured and subordinated notes will be used to purchase a portfolio of approximately $400 million of primarily senior secured leveraged loans. The CLO will have an approximately four-year reinvestment period and a two-year noncall period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 41% for class A-1 notes and 35% for 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 the 'AAAsf' stress scenario. The level of CE for class A-1 notes is above the average 'AAAsf' CE of recent CLO issuances. The level of CE for class A-2 notes is below the average 'AAAsf' CE of recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO notes.

'B+/B' Asset Quality: The average credit quality of the indicative portfolio is 'B+/B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote highly speculative credit quality; however, in Fitch's opinion, the class A notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 and A-2 notes are projected to withstand default rates of up to 66.6% and 62.2%, respectively.

Strong Recovery Expectations: The indicative portfolio consists of 99.1% first lien senior secured loans. Approximately 90.1% 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 77.5%. In determining the class A notes' ratings, Fitch stressed the indicative portfolio by assuming a higher concentration of assets with lower recovery prospects and further reduced recovery assumptions for higher rating stress, resulting in a 40.6% 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. Fitch expects the class A-1 and A-2 notes to remain investment grade, even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'AAsf' and 'AAAsf' for the class A-1 notes and between 'A+sf' and 'AAAsf' for the class A-2 notes.

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 operative criteria report for this ratings analysis. Under the exposure draft, a direct support counterparty is expected to maintain a long-term rating of at least 'A' or a short-term rating of at least 'F1' in order to support note ratings of up to 'AAAsf'. The issuer's account holder, Citibank, N.A., satisfies the minimum expected ratings threshold for a direct support counterparty under the exposure draft framework.

Fitch's existing counterparty criteria (dated May 14, 2014) expects this role to be fulfilled by an institution with a long-term rating of at least 'A' and a short-term rating of at least 'F1'. Citibank's long-term and short-term ratings currently meet these expectations, but the transaction documents give the optionality of relying on either a long-term or a short-term rating as opposed to both. We note that Citibank's short-term rating of 'F1' (in addition to its 'A+' long-term rating) is in line with the expectation for short-term ratings under Fitch's existing counterparty, and that the role of issuer account holder poses inherently short-term risk to the CLO. Therefore, the ratings for class A-1 and A-2 notes remain achievable under Fitch's existing criteria.

The framework regarding expectations for qualified investments has not materially changed between the existing criteria and the exposure draft.

DUE DILIGENCE USAGE

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

Click on the link below for an analysis of the representations, warranties, and enforcement mechanisms available to investors in transaction documents for this transaction and how they compare to those of similar securities.

Additional information is available at www.fitchratings.com.

Sources of Information:

The information used to assess these ratings was provided by the arranger (Goldman, Sachs & Co.) and the public domain.

Vibrant CLO IV, Ltd. /LLC

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882786

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 Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

Vibrant CLO IV, Ltd./LLC Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882843

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005910

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005910

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/20160610005780/en/

Fitch Ratings
Primary Analyst
Robert Rhein, +1-312-606-2314
Senior Director
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
John Um, CFA, +1-212-908-0287
Director
or
Committee Chairperson
Derek Miller, +1-312-368-2076
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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