Fitch Assigns Oak Hill European Credit Partners III Final Ratings
EUR201.1m Class A-1: 'AAAsf'; Outlook Stable
EUR5.3m Class A-2: 'AAAsf'; Outlook Stable
EUR31.6m Class A-3: 'AAAsf'; Outlook Stable
EUR31.8m Class B-1: 'AA+sf'; Outlook Stable
EUR12.7mClass B-2: 'AA+sf'; Outlook Stable
EUR23.5m Class C: 'A+sf'; Outlook Stable
EUR20.5m Class D: 'BBB+sf'; Outlook Stable
EUR30.5m Class E: 'BBsf'; Outlook Stable
EUR11.7m Class F: 'Bsf'; Outlook Stable
EUR48.0m subordinated notes: not rated
Oak Hill European Credit Partners III Designated Activity Company is a cash flow collateralised loan obligation (CLO).
KEY RATING DRIVERS
'B'/'B-' Portfolio Credit Quality
Fitch expects the average credit quality of obligors to be in the 'B' category. Fitch has credit opinions or public ratings on all obligors in the identified portfolio. The weighted average rating factor of the identified portfolio is 32.9.
High Recovery Expectation
At least 90% of the portfolio will comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Fitch has assigned Recovery Ratings to all of the assets in the identified portfolio. The weighted average recovery rate of the identified portfolio is 73.8%.
Unhedged Non-euro Assets Exposure
The transaction is allowed to invest up to 25% of the portfolio in hedged non-euro-denominated assets. Unhedged non-euro assets are limited to a maximum exposure of 2.5% of the portfolio subject to principal haircuts. The manager can only invest in unhedged assets if, after the applicable haircuts, the aggregate balance of the assets is above the reinvestment target par balance.
Partial Interest Rate Hedge
Up to 10% of the portfolio can be invested in fixed-rate assets, while fixed-rate liabilities accounted for 11.9% at closing. Five years after closing, the class A-3 notes will start paying a floating rate of interest, reducing the share of fixed-rate liabilities to 4.5% of target par. The transaction is thus partially hedged against rising interest rates.
TRANSACTION SUMMARY
Net proceeds from the notes are being used to purchase a EUR400m portfolio of European leveraged loans and bonds. The portfolio is managed by Oak Hill Advisors (Europe), LLP. The transaction has a four-year re-investment period 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.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will shortly be available at www.fitchratings.com.
RATING SENSITIVITIES
A 25% increase in the obligor default probability would lead to a downgrade of up to three 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.
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 Recognised Statistical Rating Organisations 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:
-Indicative asset-by-asset data provided by the portfolio manager as at 18 March 2015
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