Fitch Assigns Dartry Park CLO Limited Expected Ratings
Class A-1A: 'AAA(EXP)sf'; Outlook Stable
Class A-1B: 'AAA(EXP)sf'; Outlook Stable
Class A-2A: 'AA+(EXP)sf'; Outlook Stable
Class A-2B: 'AA+(EXP)sf'; Outlook Stable
Class B: 'A(EXP)sf'; Outlook Stable
Class C: 'BBB(EXP)sf'; Outlook Stable
Class D: 'BB(EXP)sf'; Outlook Stable
Class E: '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.
Dartry Park CLO Limited 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 all the obligors in the identified portfolio. The covenanted maximum Fitch weighted average rating factor (WARF) for assigning expected ratings is 34. The WARF of the identified portfolio is 33.2.
High Recovery Expectations
The portfolio will comprise a minimum 90% senior secured obligations. Fitch has assigned Recovery Ratings to the entire identified portfolio. The covenanted minimum weighted average recovery rate (WARR) for assigning expected ratings is 65.5%. The WARR of the identified portfolio is 70.6%.
Diversified Asset Portfolio
Unlike other CLO 2.0s, 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
Interest rate risk is naturally hedged for most of the portfolio, as fixed-rate liabilities and assets represent 4.25% and between 0% and 10% of the target par amount, respectively.
At closing, the issuer will enter into a participation agreement with Blackstone/GSO Corporate Funding Limited (the seller) regarding the initial portfolio assets. The seller has granted the issuer a fixed charge over the initial portfolio assets while the title is being transferred to the issuer. A fixed charge over such financial assets is difficult to establish, given the lack of control. However, Fitch received a legal opinion that the fixed charge in this case is likely to be upheld, given the control over the accounts of the seller.
Net proceeds from the notes issue will be used to purchase a EUR400m portfolio of mostly European leveraged loans and bonds. The portfolio is managed by Blackstone/GSO Debt Funds Management Europe 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.
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 three notches for the rated notes.