RPT-Fitch assigns North Westerly CLO IV 2013 B.V. expected ratings
(Repeat for additional subscribers)
Dec 3 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned North Westerly CLO IV 2013 B.V.'s notes expected ratings, as follows:
EUR152m Class A-1: 'AAA(EXP)sf'; Outlook Stable
EUR25m Class A-2: 'AAA(EXP)sf'; Outlook Stable
EUR37m Class B: 'AA(EXP)sf'; Outlook Stable
EUR17.5m Class C: 'A(EXP)sf'; Outlook Stable
EUR16m Class D: 'BBB(EXP)sf'; Outlook Stable
EUR21m Class E: 'BB(EXP)sf'; Outlook Stable
EUR36.5m subordinated notes: not rated
North Westerly CLO IV B.V. is an arbitrage cash flow collateralised loan obligation (CLO). Net proceeds from the issuance of the notes will be used to purchase a EUR300m portfolio of European and US leveraged loans and bonds. The portfolio is managed by NIBC Bank NV. The reinvestment period is scheduled to end in 2017.
The assignment of the final ratings is contingent on the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
Portfolio Credit Quality
Fitch expects the average credit quality of obligors to be in the 'B'/'B-' range. The agency has credit opinions on 47 of the 51 obligors in the indicative portfolio, and the expected ratings are contingent on credit opinions being obtained on all the obligors that do not have public rating available. The indicative portfolio includes a number of loans to mid-cap borrowers in Germany and the Netherlands that are less widely syndicated and have not been included in other CLOs. These loans may be significantly less liquid in secondary trading compared with more broadly syndicated loans.
Above Average Recoveries
At least 90% of the portfolio will comprise senior secured loans and senior secured bonds. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured, and mezzanine assets. The covenanted weighted average (WA) Fitch recovery rate is 68%. Fitch has assigned Recovery Ratings to 53 of the 57 assets in the indicative portfolio, with a WA Fitch recovery rate of 76.2%.
Limited Basis/Reset Risk
Fixed assets can account for up to 10% of the portfolio, while 8.2% of the liabilities are fixed-rate. Therefore the transaction is less exposed to rising interest rates compared with other European CLOs. Liabilities pay semi-annually and no more than 5% of the assets can pay interest less frequently than semi-annually.
Limited FX Risk
Asset swaps are used to mitigate any currency risk on assets not denominated in EUR. All non-euro assets have to be hedged using suitable asset swaps. Non-euro assets are limited to 20% of the portfolio.
Amendments to Documents
The documents allow the trustee to approve certain changes to transaction documents upon the receipt of rating confirmation without further reference to investors. However, the rating impact is not equivalent to determining whether such a change is prejudicial to the interests of investors. It should be noted that the provision of rating confirmations is at the discretion of Fitch and we may choose not to provide rating confirmations (see "Unintended Consequences of Rating Confirmation References" available on Fitch's website at www.fitchratings.com.)
A 25% increase in the expected obligor default probability would lead to a downgrade of one to four notches for the rated notes.
A 25% reduction in the expected recovery rates would lead to a downgrade of one to five notches for the rated notes.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report, which will shortly be available at www.fitchratings.com.
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