Fitch Ratings assigns the following ratings to the notes issued
on the Third Funding Date by Guggenheim Private Debt Fund Note
Issuer 2.0, LLC (Guggenheim PDFNI 2):
--$65,000,000 Class A, Series A-3, 'A-sf', Outlook Stable;
--$25,000,000 Class B, Series B-3, 'BBB-sf', Outlook Stable;
--$16,500,000 Class C, Series C-3, 'BBsf', Outlook Stable;
--$8,375,000 Class D, Series D-3, 'Bsf', Outlook Stable.
Fitch does not rate the leverage tranche, class E notes, and
limited liability company membership interests.
In addition, the note issuance will not result in any rating
action on the existing notes issued on April 12, 2016 (the first
funding date) and the Series 2 notes issued on July 8, 2016 (the
second funding date). A full list of existing rated notes follows
at the end of this release.
TRANSACTION SUMMARY
Fitch assigned ratings to the notes issued on the third funding
date, occurring on Aug. 30, 2016. Pursuant to the third funding
date, the issuer has drawn an aggregate of $160 million from the
commitments plus $90 million from the leverage tranche (not rated
by Fitch). Of the $160 million, $45.125 million was issued in the
form of first-loss class E notes and LLC membership interests, both
of which are also not rated by Fitch.
The first and second funding dates had occurred on April 12,
2016 and July 8, 2016, respectively, achieving a total
capitalization of $750 million through the second funding date.
This amount consisted of $397.1 million of rated notes, $202.9
million of unrated first-loss class E notes and LLC interests, and
$150 million from the leverage tranche. All notes from each series
are cross-collateralized by the entire collateral portfolio, which
is expected to consist of approximately $161.9 million of broadly
syndicated loans, $758.4 million of private-debt investments (PDIs)
and approximately $91.1 million in cash.
Guggenheim PDFNI 2.0 is a collateralized loan obligation (CLO)
transaction that invests in a portfolio composed of a combination
of broadly syndicated loans and middle-market PDIs. The manager,
Guggenheim Partners Investment Management, LLC (GPIM) may raise up
to $2 billion of commitments from investors to fund the
transaction. Investors earn class-specific commitment fees on the
undrawn portions of their commitments. The commitments are expected
to be fully drawn through a maximum of seven separate funding dates
during the investment period. At each funding date, notes and the
leverage tranche will be issued in proportions that may decrease
the level of credit enhancement (CE) available for each class. CE
levels at each funding date are further described in Fitch's report
'Guggenheim Private Debt Fund Note Issuer 2.0, LLC' dated Sept. 25,
2015.
Fitch expects to assess the creditworthiness of the notes at
each funding date.
KEY RATING DRIVERS
Sufficient Credit Enhancement: CE for each class of rated notes,
in addition to excess spread, is sufficient to protect against
portfolio default and recovery rate projections in each class's
respective rating stress scenario. The degree of CE available to
each class of rated notes exceeds the average CE levels typically
seen on like-rated tranches of recent CLO issuances backed by
middle-market loans.
'B-/CCC+' Asset Quality: The average credit quality of the Fitch
stressed portfolio is 'B-/CCC+', which is below that of recent
CLOs. Issuers rated in the 'B' rating category denote a highly
speculative credit quality while issuers in the 'CCC' rating
category denote substantial credit risk. When analyzing the capital
structure for the third funding date, class A, B, C and D notes are
projected to be able to withstand default rates of up to 85.5%,
77.9%, 73.9% and 72.7%, respectively.
Fitch's cash flow modelling results for each class of notes
indicated higher passing ratings than the assigned rating levels.
However, Fitch will not be assigning ratings higher than the
current ratings due to the provision for additional funding dates
resulting in a more leveraged capital structure, per the
transaction's documents.
Strong Recovery Expectations: In determining the rating of the
notes, Fitch created a stressed portfolio and assumed recovery
prospects consistent with a Fitch Recovery Rating of 'RR3' in line
with the collateral quality test limit for asset recoveries.
FITCH ANALYSIS
Analysis was conducted on a Fitch-stressed portfolio which was
created by Fitch and designed to address the impact of the most
prominent risk-presenting concentration allowances and targeted
test levels to ensure that the transaction's expected performance
is in line with the ratings assigned. The Fitch-stressed portfolio
and notable portfolio concentration limitations are described in
the press release 'Fitch Rates Guggenheim Private Debt Fund Note
Issuer 2.0, LLC' dated April 12, 2016.
In the indicative portfolio Fitch had received for the third
funding date, Fitch classified 24% of the loan assets as business
services. This exceeds the maximum 20% limitation for the top
industry, per the transaction documents. To address this excess
exposure, the industry concentration for business services in the
Fitch-stressed portfolio was increased to 24%.The remaining top
five industries were increased to 20%, 15%, 15%, 15% and 11%,
respectively.
RATING SENSITIVITIES
Fitch evaluated the third funding date structure's sensitivity
to the potential variability of key model assumptions including
decreases in recovery rates and increases in default rates or
correlation. Fitch also analyzed the impact of a failure to fund
commitments beyond the third funding date. Further details on
additional rating sensitivities conducted at the first funding date
can also be found in Fitch's press release 'Fitch Rates Guggenheim
Private Debt Fund Note Issuer 2.0, LLC' dated April 12, 2016.
Fitch expects each class of notes to remain within one rating
category of their original ratings even under the most extreme
sensitivity scenarios. Some notes were able to withstand rating
stresses within two rating categories in certain scenarios. Results
under these sensitivity scenarios ranged between 'AA+sf' and
'BBBsf' for the class A notes; 'BBB+sf' and 'BBsf' for the class B
notes; 'BBBsf' and 'B+sf' for the class C notes; and 'BB+sf' and
'B-sf' for the class D notes.
The results of the sensitivity analysis also contributed to
Fitch's assignment of Stable Outlooks for each class of notes.
VARIATIONS FROM CRITERIA
Fitch analyzed the transaction in accordance with its CLO rating
criteria, as described in its July 2016 report, 'Global Rating
Criteria for CLOs and Corporate CDOs', with the following
variations.
The Fitch stressed portfolio for this transaction represents an
entirely hypothetical portfolio constructed by Fitch. This stressed
portfolio contained a total of 39 obligors, each representing the
maximum covenanted exposure permissible for the portfolio. Fitch's
typical analysis of middle-market CLOs in the U.S. assumes a
maximum covenant exposure for the largest 10 obligors only. The
variation is a more conservative assumption and has a minor impact
versus the standard application of criteria.
Fitch accounted for the maximum allowable industry concentration
in the top five industries (as opposed to three, as highlighted in
the CLO criteria) in its construction of the Fitch-stressed
portfolio, given the expectation of a concentrated portfolio of
debt and preferred equity from middle-market entities. This is a
more conservative assumption and has a minor impact versus the
standard application of criteria.
Fitch assumed 15% of the portfolio was able to defer interest
payments in its cash flow model analysis, in line with the
permissible exposure to deferrable items under the concentration
limitations. According to the indenture, if these items have been
deferring for over a year they will not be given par credit for
certain tests. Fitch assumed these assets deferred their interest
payments for one year to account for the period in which such asset
would be deferring yet still be given par credit. This is a more
conservative assumption and has a minor impact versus the standard
application of criteria, which does not indicate a specific stress
for deferrable assets.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties
and enforcement mechanisms (RW&Es) that are disclosed in the
offering document and which relate to the underlying asset pool is
available by accessing the appendix referenced under "Related
Research" below. The appendix also contains a comparison of these
RW&Es to those Fitch considers typical for the asset class as
detailed in the Special Report titled "Representations, Warranties
and Enforcement Mechanisms in Global Structured Finance
Transactions," dated May 31, 2016.
PERFORMANCE ANALYTICS
Surveillance analysis is conducted on the basis of the
then-current portfolio. Fitch expects to have credit views, via
either public ratings or credit opinions, on all of the PDIs that
will be purchased for the portfolio. Fitch will rely on the issuer
to provide it with relevant financial information on such borrowers
on an ongoing basis so that Fitch may maintain its ratings on the
transaction.
Details of the transaction's performance are available to
subscribers on Fitch's web site at 'www.fitchratings.com'.
The third funding will not result in a rating action on the
following notes, which are currently rated as follows:
--$149,000,000 Class A, Series A-1, 'A-sf', Outlook Stable;
--$50,000,000 Class B, Series B-1, 'BBB-sf', Outlook Stable;
--$45,000,000 Class C, Series C-1, 'BBsf', Outlook Stable;
--$21,000,000 Class D, Series D-1, 'Bsf', Outlook Stable;
--$76,000,000 Class A, Series A-2, 'A-sf', Outlook Stable;
--$25,000,000 Class B, Series B-2, 'BBB-sf', Outlook Stable;
--$21,000,000 Class C, Series C-2, 'BBsf', Outlook Stable;
--$10,125,000 Class D, Series D-2, 'Bsf', Outlook Stable.
Sources of Information:
The sources of information used to assess these ratings were the
transaction documents provided by the manager, GPIM, and the public
domain. The manager is expected to provide financial information
related to the PDIs to Fitch's leveraged finance group, which used
the information to establish credit opinions on these
borrowers.
Additional information is available at www.fitchratings.com
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
(pub. 18 Jul 2016)
https://www.fitchratings.com/site/re/884963
Criteria for Interest Rate Stresses in Structured Finance
Transactions and Covered Bonds (pub. 17 May 2016)
https://www.fitchratings.com/site/re/879815
Global Rating Criteria for CLOs and Corporate CDOs (pub. 28 Jul
2016)
https://www.fitchratings.com/site/re/885653
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130
Related Research
Guggenheim Private Debt Fund Note Issuer 2.0, LLC --
Appendix
https://www.fitchratings.com/site/re/871685
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011018
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011018
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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version on businesswire.com: http://www.businesswire.com/news/home/20160830006539/en/
Fitch RatingsPrimary AnalystNazneen Kutty,
+1-312-368-3217Associate DirectorFitch Ratings, Inc.70 West Madison
StreetChicago, IL 60602orSecondary AnalystChristine Yoon,
+1-212-908-0603Senior DirectororCommittee ChairpersonDerek Miller,
+1-312-368-2076Managing DirectororMedia Relations, New YorkSandro
Scenga, +1-212-908-0278sandro.scenga@fitchratings.com