OREANDA-NEWS. June 16, 2015. Fitch Ratings has assigned Tikehau CLO B.V.'s notes expected ratings as follows:

Class A-1: 'AAA(EXP)sf'; Outlook Stable
Class A-2: 'AAA(EXP)sf'; Outlook Stable
Class B: 'AA+(EXP)sf'; Outlook Stable
Class C: 'A(EXP)sf'; Outlook Stable
Class D: 'BBB(EXP)sf'; Outlook Stable
Class E: 'BB(EXP)sf'; Outlook Stable
Class F: 'B-(EXP)sf'; Outlook Stable
Subordinated notes: not rated

The assignment of the final ratings is contingent on the receipt of final documents conforming to information already reviewed.

Tikehau CLO B.V. is an arbitrage cash flow collateralised loan obligation (CLO).

KEY RATING DRIVERS
Moderate Portfolio Credit Quality
Fitch has public ratings or credit opinions on 64 of the 69 obligors in the identified portfolio and has determined the average credit quality to be in the 'B' to 'B-' range. The weighted average rating factor (WARF) of the identified portfolio (68.1% of target par) is 32.7, while the covenanted maximum Fitch WARF for assigning expected ratings is 35.0.

High Expected Recoveries
At least 90% of the portfolio will comprise senior secured obligations. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured and mezzanine assets. Fitch has assigned Recovery Ratings to 69 of the 74 obligations. The weighted average recovery rating (WARR) of the identified portfolio is 69.2%, while the covenanted minimum Fitch WARR for assigning expected ratings is 67.0%.

Partial Interest Rate Hedge
During the first five years of the transaction, interest rate risk is naturally hedged for most of the portfolio, as fixed-rate liabilities and assets initially represent 11.8% and up to 7.5% of target par, respectively. As the fixed-paying class A-2 notes are senior in the structure and switch to floating after five years, the notional amount of fixed-rate liabilities will reduce after the reinvestment period, limiting the benefit of the hedge.

Unhedged Non-Euro Assets Exposure
The manager can invest up to 2.5% of the portfolio in unhedged non-euro assets, which are purchased in the primary market. Any unhedged asset in excess of the allowed limits or held for longer than 90 days will receive a zero balance for the calculation of the OC tests. Unhedged assets may only be purchased if after a haircut of 50% the portfolio notional amount is still above target par.

Hedged Non-Euro Assets Exposure
The transaction is permitted to invest up to 20% of the portfolio in non-euro assets, provided perfect asset swaps can be entered into.

TRANSACTION SUMMARY
Net proceeds from the issuance of the notes are being used to purchase a EUR340m portfolio of mostly euro-denominated leveraged loans and bonds. The transaction features a four-year reinvestment period and the portfolio is managed by Tikehau Capital Europe Limited.

The transaction documents may be amended subject to rating agency confirmation or note-holder approval. Where rating agency confirmation relates to risk factors, Fitch will analyse the proposed change and may provide a rating action commentary if the change has a negative impact on the then current ratings. Such amendments may delay the repayment of the notes as long as Fitch's analysis confirms the expected repayment of principal at the legal final maturity.

If in the agency's opinion the amendment is risk-neutral from a rating perspective, Fitch may decline to comment. Noteholders should be aware that the structure considers the confirmation to be given if Fitch declines to comment.

RATING SENSITIVITIES
A 25% increase in the expected obligor default probability would lead to a downgrade of one to three notches for the rated notes.

A 25% reduction in expected recovery rates would lead to a downgrade of one to three notches for the rated notes.

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

DATA ADEQUACY
The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information.

Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Identified portfolio provided by Goldman Sachs as at 4 June 2015