OREANDA-NEWS. December 15, 2015. Fitch Ratings has upgraded Harbourmaster CLO 7's notes as follows:

EUR93m Class A2 (ISIN XS0273887363): affirmed at 'AAAsf''; Outlook Stable
EUR41m Class A3 (ISIN XS0273889228): upgraded to 'AAsf' from 'A+sf'; Outlook Stable
EUR38m Class A4 (ISIN XS0273890664): upgraded to 'Asf' from 'BBBsf'; Outlook Stable
EUR38m Class B1 (ISIN XS0273891639): upgraded to 'BB+sf' from 'BBsf'; Outlook Positive
EUR16.2m Class B2 (ISIN XS0273894732): upgraded to 'B+sf' from 'B-sf'; Outlook Positive
EUR2.7m Class S2 combo (XS0273897917): upgraded to 'AAsf' from 'A+sf', Outlook Stable
EUR1.8m Class S5 combo (XS0273900992): upgraded to 'Asf' from 'BBBsf', Outlook Stable

Harbourmaster CLO 7 B.V. is a securitisation of mainly European senior secured loans, senior unsecured loans, second-lien loans, mezzanine obligations and high-yield bonds. At closing a total note issuance of EUR925m was used to invest in a target portfolio of EUR900m. The portfolio is actively managed by GSO / Blackstone Debt Funds Management Europe Limited.

KEY RATING DRIVERS
The upgrade reflects a significant increase in credit enhancement throughout the capital structure as a result of amortisation, stable portfolio concentration and credit quality. Portfolio amortisation over the last 12 months amounted to close to EUR100m, of which EUR45m was diverted to the full pay-down of the class A1 notes and EUR55 towards the partial amortisation of the class A2 notes, which are now 63% of their initial balance.

Credit enhancement on the class A2 notes as a result increased to 64% from 45% and on the class B2 to 13% from 7%. Credit enhancement increases to 75% if the current cash balance is diverted to the pay-down of the class A2 notes. The transaction cannot reinvest scheduled or unscheduled proceeds since 2013 and therefore all proceeds are being diverted towards the pay-down of the notes.

Despite the significant portfolio amortisation, the portfolio's concentration remains largely unchanged. The largest obligor has over the last 12 months increased to 9.97% from 6.4%, and the top 10 obligors now make up for 68.2%, up from 55.7%. The largest country represented in the portfolio is the US with 20.2%, up from 19.3%, followed by Germany with 18.8%, up from 12.2% and the UK with 16.5%, down from 20.7%. Peripheral European exposure from Spain and Italy decreased to 15.4% from 16.7%. The largest industry is healthcare with 18.5%, down from 18.6%, followed by broadcasting and media with 16%, up from 15.5% and telecommunications with 15.1%, up from 11.8%.

In addition, the portfolio's credit quality has improved over the past one year. Now over 50% of the included assets have a credit opinion of 'B' and the exposure to 'B-' rated assets have halved over the last 12 months. This is despite the 'CCC+' and below bucket increasing to 6.4% from 3.9%. While there has been one additional default during the same period, it has been worked out and the portfolio currently does not include any defaulted assets.

The Positive Outlook on the junior notes reflects the possibility of an upgrade of the junior notes if amortisation maintains the current pace and the effects on concentration remain limited.

The ratings of the combination notes S2 and S5 are linked to the ratings of their respective components, the class A3 and A4 notes.

RATING SENSITIVITIES
Fitch rating sensitivity analysis showed that stressing the probability of default by 25% would not impact the notes, whereas a reduction of recoveries by 25% would result in negative rating migration on the class B2 notes by up to two notches.

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

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

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 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.
-Loan-by-loan data provided by Deutsche Bank as at 30 October 2015
-Transaction reporting provided by Deutsche Bank as at 30 October 2015