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RPT-Fitch Assigns Arbour CLO Limited Final Ratings
June 17, 2014 / 1:37 PM / 4 years ago

RPT-Fitch Assigns Arbour CLO Limited Final Ratings

(Repeat for additional subscribers)

June 17 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Arbour CLO Limited notes final ratings, as follows:

EUR208.75m class A: ‘AAAsf’; Outlook Stable

EUR26.25m class B-1: ‘AAsf’; Outlook Stable

EUR19.95m class B-2: ‘AAsf’; Outlook Stable

EUR11.25m class C-1: ‘A+sf’; Outlook Stable

EUR10.75m class C-2: ‘A+sf’; Outlook Stable

EUR19.75m class D: ‘BBB+sf’; Outlook Stable

EUR26.675m class E: ‘BB+sf’; Outlook Stable

EUR12.125m class F: ‘B-sf’; Outlook Stable

EUR39.5m subordinated notes: not rated

Arbour CLO Limited is an arbitrage cash flow collateralised loan obligation (CLO).

KEY RATING DRIVERS

‘B’ Category Portfolio Credit Quality

The average credit quality of the indicative portfolio is in the ‘B’ category. The agency has public ratings or credit opinions on all obligors in the indicative portfolio. The covenanted maximum Fitch weighted average rating factor (WARF) for assigning the final ratings is 34.0. The WARF of the indicative portfolio is 31.6.

High Expected Recoveries

At least 90% of the portfolio comprises senior secured obligations. Fitch has assigned Recovery Ratings (RR) to all assets in the indicative portfolio. The covenanted minimum Fitch weighted average recovery rate (WARR) for assigning the final ratings is 69%. The WARR of the indicative portfolio is 74.8%.

Payment Frequency Switch

The notes pay quarterly, while the portfolio assets can reset to a semi-annual basis. The transaction has an interest smoothing account, but no liquidity facility. Potential liquidity stress for the non-deferrable class A, B-1 and B-2 notes - stemming from a large proportion of assets resetting to a semi-annual basis in any one quarterly period - is addressed by switching the payment frequency on the notes to semi-annual in such a scenario.

Partial Interest Rate Hedge

Between 5% and 15% of the portfolio may be invested in fixed-rate assets, while fixed-rate liabilities account for 10% of total liabilities.

Limited FX Risk

The transaction is allowed to invest up to 50% of the portfolio in non-euro-denominated assets, provided these are hedged with perfect asset swaps within six months of purchase. Unhedged non-euro assets must not exceed 2.5% of the portfolio at any time.

Trading Gain Release

The portfolio manager may designate trading gains as interest proceeds, providing the portfolio balance remains above the reinvestment target par balance and the class E overcollateralisation (OC) test remains above its value at the effective date.

TRANSACTION SUMMARY

Net proceeds from the issue of the notes are being used to purchase a EUR365.3m portfolio of mostly European leveraged loans and bonds. The portfolio is managed by Oaktree Capital Management (UK) LLP. The reinvestment period is scheduled to end in July 2018.

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.

RATING SENSITIVITIES

A 25% increase in the expected obligor default probability would lead to a downgrade of up to three notches for the rated notes.

A 25% reduction in expected recovery rates would lead to a downgrade of up to six notches for the rated notes.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will shortly be available at www.fitchratings.com.

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