Fitch to Rate KKR CLO 13 Ltd./LLC; Issues Presale Report

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings expects to assign the following ratings to KKR CLO 13 Ltd./LLC:

--$2,000,000 class X notes 'AAA(EXP)sf'; Outlook Stable;

--$206,000,000 class A-1A notes 'AAA(EXP)sf'; Outlook Stable;

--$0 class A-1B notes 'AAA(EXP)sf'; Outlook Stable;

--$50,000,000 class A-1L loans 'AAA(EXP)sf'; Outlook Stable.

Fitch does not expect to rate the class B-1, B-2, C, D, E, F, or subordinated notes.

TRANSACTION SUMMARY

KKR CLO 13 Ltd. (the issuer) and KKR CLO 13 LLC (the co-issuer) represent an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by KKR Financial Advisors II, LLC (KFA). Net proceeds from the issuance of notes will be used to purchase a portfolio of approximately $400 million of leveraged loans. The CLO will have an approximately four-year reinvestment period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 36% for class A-1A and A-1B notes and A-1L loans (collectively, the class A debt), 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 the class A debt is slightly below the average for recent CLO issuances; however, cash flow modeling indicates performance in line with other Fitch-rated 'AAAsf' CLO debt. Class X notes are expected to be paid in full from interest proceeds by the second payment date.

'B' Asset Quality: The average credit quality of the indicative portfolio is 'B', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote relatively weak credit quality; however, in Fitch's opinion, the class X and A debt are unlikely to be affected by the foreseeable level of defaults. The class X and A debt are robust against default rates of up to 100% and 65.6%, respectively.

Strong Recovery Expectations: The indicative portfolio consists of 96.8% first lien senior secured loans. Approximately 94.3% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, resulting in a base case recovery assumption of 77.8%. In determining the class X and A debt ratings, 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 analysis of KKR 13 class X and A debt assumed a 38.2% 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. Fitch expects the class A 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 notes. The class X notes passed at the 'AAAsf' rating level in all sensitivity scenarios tested.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report, which is available 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 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 these ratings were provided by the arranger, Morgan Stanley & Co. LLC and the public domain. The expected ratings are based on information provided to Fitch as of Nov. 17, 2015.

KKR CLO 13 Ltd./LLC

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873850

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 - Amended (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=994268

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=994268

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/20151117007037/en/

Fitch Ratings
Primary Analyst:
Aaron Hughes, +1-312-368-2074
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Trevor Lee, +1-212-908-0881
Associate Director
or
Committee Chairperson:
Derek Miller, +1-312-368-2076
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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