OREANDA-NEWS. March 25, 2016. Fitch Ratings has assigned Contego CLO III B.V. expected ratings, as follows:

Class A: '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
Subordinated notes: not rated

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

Contego CLO III B.V. (the issuer) is a cash flow collateralised loan obligation (CLO). Net proceeds from the issuance of the notes are being used to purchase a EUR300m portfolio of mostly European leveraged loans and bonds. The portfolio is managed by Five Arrows Managers LLP (part of the Rothschild Group). The reinvestment period is scheduled to end in April 2020.

KEY RATING DRIVERS
'B' Category Portfolio Credit Quality
The average credit quality of the identified portfolio is in the 'B' category. Fitch has public ratings or credit opinions on all but two obligors in the identified portfolio. The covenanted maximum Fitch weighted average rating factor (WARF) for assigning the ratings is 33.5. The WARF of the identified portfolio is 32.87.

High Expected Recoveries
At least 90% of the portfolio comprises senior secured obligations. Fitch has assigned Recovery Ratings (RR) to 71 of the 73 obligations in the identified portfolio. The covenanted minimum Fitch weighted average recovery rate (WARR) for assigning the ratings is 68%. The WARR of the identified portfolio is 70.1.

Diversified Portfolio
The transaction contains a covenant that limits the top 10 obligors to 20% of the portfolio balance. In addition, portfolio profile tests limit exposure to the top Fitch industry to 17.5% and the top three Fitch industries to 40%. This ensures that the asset portfolio is not exposed to excessive obligor concentration.

Limited FX Risk
The transaction is allowed to invest in non-euro-denominated assets, provided these are hedged with perfect asset swaps within 30 days after settlement. Unhedged non-euro assets must not exceed 3% of the portfolio at any time and can only be included if, at the trade date of such assets, the portfolio balance is above the target par amount and the principal balance of such assets, converted into euro at spot rate, is haircut by 50%.

Documentation Amendments
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 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 up to two notches for the rated notes. A 25% reduction in expected recovery rates would lead to a downgrade of up to five notches for the rated notes.

DUE DILIGENCE USAGE
All but two of the underlying assets have ratings or credit opinions from Fitch. Fitch has relied on the practices of the relevant Fitch groups 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.

REPRESENTATIONS AND WARRANTIES
A description of the transaction's Representations, Warranties and Enforcement Mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction. Offering documents for EMEA leveraged finance CLOs typically do not include RW&Es that are available to investors and that relate to the asset pool underlying the CLO. Therefore, Fitch credit reports for EMEA leveraged finance CLO offerings will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 21 January 2016 at www.fitchratings.com.

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

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by the arranger as at 18 March 2016
- Offering circular provided by the arranger as at 22 March 2016
- Transaction documents provided by the arranger as at 18 March 2016