OREANDA-NEWS. Fitch Ratings has assigned Babson Euro CLO 2015-1 B.V.'s notes expected ratings as follows:

Class A-1: 'AAA(EXP)sf'; Outlook Stable
Class A-2: 'AAA(EXP)sf'; Outlook Stable
Class A-3: 'AAA(EXP)sf'; Outlook Stable
Class B-1: 'AA(EXP)sf'; Outlook Stable
Class B-1: '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
Class F: '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.

Babson Euro CLO 2015-1 B.V. is a cash flow collateralised loan obligation (CLO).

KEY RATING DRIVERS
Moderate Portfolio Credit Quality
Fitch has public ratings or credit opinions on 61 of the 64 obligors in the identified portfolio and has determined the average credit quality to be in the 'B' to 'B-' range. The weighted average rating factor (WARF) of the identified portfolio (56.8% of target par) is 35.2, while the covenanted maximum Fitch WARF for assigning expected ratings is 35.5.

High Expected Recoveries
At least 90% of the portfolio will comprise senior secured obligations. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured and mezzanine assets. Fitch has assigned Recovery Ratings to 63 of the 66 obligations. The weighted average recovery rating (WARR) of the identified portfolio is 68.7%, while the covenanted minimum Fitch WARR for assigning expected ratings is 66.0%.

Diversified Asset Portfolio
Unlike the majority of 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 remain granular, which provides a significant benefit in high stress scenarios, where increased diversification reduces expected default rates.

Limited Interest Rate Risk
Interest rate risk is naturally hedged for most of the portfolio, as fixed rate liabilities and assets initially represent 11% and up to 15% of target par, respectively. As the majority of fixed-paying liabilities are senior in the structure and the class A-3 notes switch to floating after five years, the proportion of fixed rate liabilities will reduce after the reinvestment period.

Hedged Non-Euro Assets Exposure
The transaction is permitted to invest up to 20% of the portfolio in non-euro assets, provided perfect asset swaps can be entered into.

TRANSACTION SUMMARY
Net proceeds from the issuance of the notes are being used to purchase a EUR400m portfolio of mostly euro-denominated leveraged loans and bonds. The transaction features a four-year reinvestment period and the portfolio is managed by Babson Capital Management (UK) Limited.

The transaction documents may be amended subject to rating agency confirmation or note-holder 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 then current 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 one to two notches for the rated notes.

A 25% reduction in expected recovery rates would lead to a downgrade of one 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 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.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Identified portfolio provided by Goldman Sachs as at 6 June 2015