OREANDA-NEWS. Fitch Ratings has assigned the following ratings and Rating Outlooks to KKR CLO 14 Ltd./LLC:

--$310,000,000 Class A-1A Notes 'AAAsf'; Outlook Stable;

--$10,000,000 Class A-1B Notes 'AAAsf'; Outlook Stable.

Fitch does not rate the class A-2, B, C, D or subordinated notes.

TRANSACTION SUMMARY

KKR CLO 14 Ltd. (the issuer) and KKR CLO 14 LLC (the co-issuer) comprise 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 the secured and subordinated notes will be used to purchase a portfolio of approximately $500.2 million of primarily senior secured leveraged 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 36.0% for the class A-1A and A-1B notes (collectively, the class A-1 notes), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' scenario. The degree of CE available to the class A-1 notes is in line with the average CE of recent CLO issuances.

'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 a highly speculative credit quality; however, in Fitch Ratings' opinion, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 63.8%.

Strong Recovery Expectations: The indicative portfolio consists of 98% first lien senior secured loans. Approximately 93.3% 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 79.7%. In determining the class A-1 notes' 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 stresses, resulting in a 40.3% 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 weighted average spread or recovery rates and increases in default rates or correlation. Fitch expects the class A-1A and A-1B notes (collectively, the class A-1 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 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, The Bank of New York Mellon Trust Company, National Association (BNY Mellon), 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), as well as the issuer's governing documents, 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'. BNY Mellon has long-term and short-term ratings that currently meet these expectations. Therefore the ratings for class A-1 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.

The publication of a representations, warranties, and enforcement mechanisms appendix is not required for this transaction.