OREANDA-NEWS. Fitch Ratings has assigned Penta CLO 2 B.V. final ratings, as follows:

EUR234m Class A: 'AAAsf'; Outlook Stable
EUR49m Class B: 'AAsf'; Outlook Stable
EUR25.25m Class C: 'Asf'; Outlook Stable
EUR20m Class D: 'BBBsf'; Outlook Stable
EUR26.75m Class E: 'BBsf'; Outlook Stable
EUR13m Class F: 'B-sf'; Outlook Stable
EUR46.1m subordinated notes: not rated

Penta CLO 2 B.V. is an arbitrage cash flow collateralised loan obligation (CLO).

KEY RATING DRIVERS
'B'/'B-' Portfolio Credit Quality
Fitch places the average credit quality of obligors in the 'B'/'B-' range. The agency has public ratings or credit opinions on 96% of the identified portfolio. The Fitch weighted average rating factor (WARF) of the identified portfolio is 34.6, above the covenanted maximum for assigning the final ratings of 34. The portfolio WARF must be in compliance with the covenant on the effective date.

High Recovery Expectations
The portfolio will comprise a minimum 90% senior secured obligation. Fitch has assigned Recovery Ratings to 96% of the identified portfolio. The weighted average recovery rate (WARR) of the identified portfolio is 65.8%, above the covenanted minimum for assigning the final ratings of 63.4%.

Diversified Asset Portfolio
This transaction contains a covenant that limits the top 10 obligors in the portfolio to 20% of the portfolio balance. This ensures that the asset portfolio will not be exposed to excessive obligor concentration.

Limited Interest Rate Risk
While interest due on the rated notes is based on a floating index, fixed-rate assets can account for up to 10% of the portfolio balance. Fitch factored in a 10% fixed-rate bucket in its cash flow analysis, which shows the rated notes can withstand excess spread compression in a rising interest rate environment.

Payment Frequency Switch
The notes pay quarterly, while the portfolio assets can reset to semi-annual. The transaction has an interest-smoothing account, but no liquidity facility. A liquidity stress for the non-deferrable classes A and B, stemming from a large proportion of assets resetting to semi-annual in any one quarter, is addressed by switching the payment frequency on the notes to semi-annual, subject to certain conditions.

TRANSACTION SUMMARY
Net proceeds from the notes issue are being used to purchase a EUR400m portfolio of mostly European leveraged loans and bonds. The portfolio is managed by Partners Group (UK) Management Limited. The reinvestment period is scheduled to end in 2019.

The transaction documents may be amended subject to rating agency confirmation or noteholder 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 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 confirmation is considered to be given if Fitch declines to comment.

RATING SENSITIVITIES
A 25% increase in the obligor default probability would lead to a downgrade of up to two notches for the rated notes. A 25% reduction in expected recovery rates would lead to a downgrade of up to four notches for the rated notes.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will shortly be available at www.fitchratings.com.

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.