Fitch Takes Multiple Actions on Harbourmaster CLO 5 B.V.
OREANDA-NEWS. Fitch Ratings has taken multiple rating actions on Harbourmaster CLO 5 B.V.'s notes as follows:
EUR5.5m Class A3 (XS0223503078): upgraded to 'Asf' from 'BBBsf'; Outlook Stable
EUR9m Class A4E (XS0223503151): affirmed at 'BBsf'; Outlook Stable
EUR16m Class A4F (XS0223503581): affirmed at 'BBsf'; Outlook Stable
EUR4m Class B1E (XS0223503664): affirmed at 'B-sf'; Outlook revised to Stable from Negative
EUR15m Class B1F (XS0223503748): affirmed at 'B-sf'; Outlook revised to Stable from Negative
EUR5.9m Class B2E (XS0223503821): affirmed at 'CCCsf'; Recovery Estimate (RE) 0%
EUR4.7m Class B2F (XS0223504043): affirmed at 'CCCsf'; RE 0%
Harbourmaster CLO 5 B.V. is a managed cash arbitrage securitisation of secured leveraged loans, primarily domiciled in Europe. The portfolio is managed by Blackstone/GSO Debt Funds Europe Limited.
KEY RATING DRIVERS
The upgrade reflects an improvement in credit enhancement (CE) over the past 12 months while the affirmations reflect the higher CE being offset by increased portfolio concentration risk. The class A2 notes have been paid in full and the class A3 notes have been paid down significantly to 17.3% of the original note balance. The Outlook on the class B1 notes has been revised to Stable from Negative following a 13.7% increase in CE.
In March 2015, EUR376,693 or 35% of the excess spread was used to pay down the class B2 notes to cure the class B2 overcollateralisation (OC) test. The OC test has since been met and is now passing with a 11.1% cushion.
The portfolio has become highly concentrated following amortisation. The number of issuers in the current portfolio has been reduced to 10 from 15 over the past 12 months and the largest 10 assets account for 79.7% of the par value. The Fitch-weighted average rating factor increased to 41.3 from 33.6, well above the trigger at 30, indicating weakening credit quality of the underlying assets. The high concentration, coupled with the low credit quality, suggest that portfolio default rates can be highly volatile.
There are currently no defaulted assets compared with EUR15.5m a year ago. However, as the transaction becomes more concentrated, the note's sensitivity to defaults increases, particularly at the junior level.
Increasing the default probability by 25% would likely result in a downgrade of up to three notches to the class B1 and B2 notes. Furthermore, applying a recovery rate cut of 25% on all the assets would likely result in a downgrade of up to two notches.
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 pools and the transactions. There were no findings that were material to this analysis.
Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transaction's initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.
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 Deutsche Bank as at 30 September 2015
-Transaction reporting provided by Deutsche Bank as at 30 September 2015