Fitch Assigns Oak Hill European Credit Partners IV Expected Ratings
OREANDA-NEWS. Fitch Ratings has assigned Oak Hill European Credit Partners IV Designated Activity Company notes expected ratings, as follows:
Class A-1A: 'AAA(EXP)sf'; Outlook Stable
Class A-1B: 'AAA(EXP)sf'; Outlook Stable
Class A-2: 'AAA(EXP)sf'; Outlook Stable
Class B-1: 'AA(EXP)sf'; Outlook Stable
Class B-2: '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.
Oak Hill European Credit Partners IV Designated Activity Company is an arbitrage cash flow collateralised loan obligation (CLO).
KEY RATING DRIVERS
'B'/'B-' Portfolio Credit Quality
Fitch expects the average credit quality of obligors to be in the 'B' category. Fitch has credit opinions or public ratings on all obligors in the identified portfolio. The covenanted minimum Fitch weighted average rating factor (WARF) for assigning expected ratings is 35.0. The WARF of the identified portfolio is 32.9.
High Recovery Expectation
At least 90% of the portfolio will comprise senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Fitch has assigned Recovery Ratings to all of the assets in the identified portfolio. The covenanted minimum weighted average recovery rate (WARR) for assigning expected ratings is 67.0%. The WARR of the identified portfolio is 72.8%.
Unhedged Non-euro Assets Exposure
The transaction is allowed to invest in non-euro-denominated assets. Unhedged non-euro assets are limited to a maximum exposure of 2.5% of the portfolio subject to principal haircuts. The manager can only invest in unhedged assets if, after the applicable haircuts, the aggregate balance of the assets is above the reinvestment target par balance.
Partial Interest Rate Hedge
Between 0% and 10% of the portfolio can be invested in fixed-rate assets, while fixed-rate liabilities account for 3.8% at closing. Fixed-rate assets can represent up to 10% of the portfolio. The transaction is thus partially hedged against rising interest rates.
Net proceeds from the notes will be used to purchase a EUR400m portfolio of European leveraged loans and bonds. The portfolio will be managed by Oak Hill Advisors (Europe), LLP. The transaction will have a four-year re-investment period 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 two 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.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
All underlying assets in the portfolio 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.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by the arranger as at 3 September 2015
- Preliminary Offering Circular provided by the arranger as at 30 October 2015