Fitch Affirms St. Paul's CLO III Limited
OREANDA-NEWS. Fitch Ratings has affirmed all ratings of St. Paul's CLO III Limited as follows:
EUR326.7m class A affirmed at 'AAAsf'; Outlook Stable
EUR64.9m class B affirmed at 'AAsf'; Outlook Stable
EUR32.4m class C affirmed at 'Asf'; Outlook Stable
EUR26.4m class D affirmed at 'BBBsf'; Outlook Stable
EUR33m class E affirmed at 'BBsf'; Outlook Stable
EUR15.4m class F affirmed at 'B-sf'; Outlook Stable
EUR57.7m subordinated notes: not rated
St Paul's CLO III Limited is a cash flow collateralised loan obligation. Net proceeds from the issue of the notes were used to purchase a EUR549m portfolio of European leveraged loans and bonds. The portfolio is managed by Intermediate Capital Managers Limited, a wholly owned subsidiary of Intermediate Capital Group PLC.
KEY RATING DRIVERS
The affirmation reflects the notes' sufficient available credit enhancement to maintain the current ratings despite a declining trend up to September 2015. Credit enhancement had decreased across the capital structure since the transaction's closing in December 2013, due to losses incurred from selling distressed and defaulted assets.
The portfolio now comprises assets worth EUR539.5m, around EUR10m below the target par amount. This is reflected in a decline in credit enhancement for the class A notes to 39.6% from 40.5% at closing and 39.9% as of September 2014 and for the class B notes to 27.6% from 28.7% and 27.9% as of September 2014. A loss of 2% over a two-year period is well below Fitch's initial expectation for the transaction. However, it is the largest loss of a CLO post-crisis rated by Fitch.
The portfolio remains diversified and is passing all collateral quality and portfolio profile tests. The largest industry remains healthcare with 16.36%, up from 13.94% as of September 2014, closely followed by business services with 14.32%, up from 13.12%. The largest country remains France with 18.24%, down from 20% as of September 2014, followed by Germany with 15.93%, down from 16.52% and the Netherlands with 14.12%, down from 15.68%.
The underlying portfolio's rating distribution has shifted with the 'CCC+' and below bucket up at 3% from 0%. This is also reflected in the weighted average rating factor increasing to 34.2 from 32.6. The Fitch covenants for the portfolio have moved since the last rating action in September 2014 to a maximum weighted average rating factor of 35, from 34 and a minimum weighted average recovery rate of 68.4, from 69.6%.
As the loss rates for the current portfolio are below those modelled for the stress portfolio, the sensitivities shown in the new issue report still apply for this transaction. Detailed sensitivity analysis is available in the new issue report dated 5 December 2013 at www.fitchratings.com.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
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 Virtus Partners / citi as at 28 August 2015
-Transaction reporting provided by Virtus Partners / citi as at 28 August 2015