Jan 15 -
-- We have reviewed Harvest CLO IV’s performance by conducting our credit and cash flow analysis and assessing the support provided by the transaction participants.
-- Following our review, we have affirmed our ratings on the class A-1A, A-1B, and A-2 notes.
-- Harvest CLO IV is a cash flow CLO transaction that securitizes loans to speculative-grade corporate firms.
Standard & Poor’s Ratings Services today affirmed its credit ratings on Harvest CLO IV PLC’s class A-1A, A-1B, and A-2 notes (see list below).
Today’s rating actions follow our review of the transaction’s performance. We have conducted our credit and cash flow analysis and assessed the support that each participant provides to the transaction by applying our 2012 counterparty criteria (see “Counterparty Risk Framework Methodology And Assumptions,” published on Nov. 29, 2012). In our analysis, we used data from the latest available trustee report dated Oct. 31, 2012.
We have subjected the capital structure to a cash flow analysis to determine the break-even default rates for each rated class of notes. In our analysis, we used the portfolio balance that we considered to be performing (EUR706,014,852), the current weighted-average spread (3.64%), and the weighted-average recovery rates that we considered to be appropriate. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category.
From our analysis, we have observed that the level of credit enhancement has remained stable since our previous review (see “Ratings Raised In Cash Flow CLO Transaction Harvest CLO IV Following Review,” published on Nov. 8, 2011). Since then, we have also observed that the notional amount of defaulted assets has increased and that the weighted-average life of the portfolio has shortened.
From our analysis, 18.20% of the portfolio comprises non euro-denominated loans, which are hedged under cross-currency swap agreements with various counterparties. In our opinion, the downgrade remedies for these cross-currency swaps do not fully comply with our 2012 counterparty criteria. As a result, in our cash flow analysis, we considered scenarios where the currency swap counterparties do not perform and where the transaction is consequently exposed to changes in currency rates. Under our scenario analysis, the class A notes could withstand the stresses applied at their current rating levels.
In our opinion, the level of credit enhancement available to the class A-1A, A-1B, and A-2 notes is consistent with their current ratings, taking into account the results of our credit and cash flow analysis and the application of our 2012 counterparty criteria (see “Counterparty Risk Framework Methodology And Assumptions,” published on Nov. 29, 2012). We have therefore affirmed our ratings on the class A-1A, A-1B, and A-2 notes.
Harvest CLO IV is a managed cash flow collateralized loan obligation (CLO) transaction that securitizes loans to primarily European speculative-grade corporate firms. The transaction closed in June 2006 and is managed by 3iDebt Management Investments Ltd.
-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012
-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011
-- Update To Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs, Sept. 17, 2009
-- Understanding Standard & Poor’s Rating Definitions, June 3, 2009
-- Surveillance Methodology For Global Cash Flow And Hybrid CDOs Subject To Acceleration Or Liquidation After An EOD, Sept. 2, 2009
-- CDO Spotlight: General Cash Flow Analytics for CDO Securitizations, Aug. 25, 2004
-- Credit Rating Model: CDO Evaluator 6.0, March 19, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Ratings Raised In Cash Flow CLO Transaction Harvest CLO IV Following Review, Nov. 8, 2011
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Credit Rating Model: Extreme Value Theory Foreign Exchange Model, Aug. 17, 2010
-- Credit Rating Model: S&P Cash Flow Evaluator, Aug. 17, 2010
Harvest CLO IV PLC
EUR580 Million Senior Floating-Rate Notes
A-1A AA+ (sf)
A-1B AA- (sf)
A-2 AA- (sf)