RPT-Fitch Assigns Richmond Park CLO Limited Final Ratings

Fri Jan 10, 2014 8:59am EST

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Jan 10 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Richmond Park CLO III Limited notes final ratings, as follows:

EUR351.050m class A-1: 'AAAsf'; Outlook Stable

EUR74.375m class A-2: 'AAsf'; Outlook Stable

EUR34.210m class B: 'Asf'; Outlook Stable

EUR26.785m class C: 'BBBsf'; Outlook Stable

EUR46.110m class D: 'BBsf'; Outlook Stable

EUR15.610m class E: 'B- sf'; Outlook Stable

EUR67.550m subordinated notes: not rated

Richmond Park CLO Limited is an arbitrage cash flow collateralised loan obligation (CLO). Net proceeds from the note issuance were used to purchase a EUR595m portfolio of European leveraged loans and bonds. The portfolio is managed by Blackstone/GSO Debt Funds Europe Limited. The transaction has a four year re-investment period scheduled to end in 2018.

KEY RATING DRIVERS

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. Nevertheless, a large proportion of assets resetting to a semi-annual basis in any one quarterly period may cause a liquidity stress for the non-deferrable senior notes. The reset risk is mitigated by a switch option whereby the payment frequency on the notes will switch to semi-annual if, during any due period, 20.0% or more of the portfolio assets reset to a semi-annual basis and as a result the projected portfolio proceeds for the following quarterly payment date are insufficient to cover the accrued interest on the senior notes on the payment date. The eligibility criteria prevent the purchase of assets paying interest less frequently than semi-annually.

Portfolio Credit Quality

The covenanted minimum Fitch weighted average rating factor for assigning ratings is 34.0. Fitch therefore expects the average credit quality of obligors to be in the 'B'/'B-' range. Fitch has public ratings or credit opinions on all assets in the initial portfolio.

Above Average Recoveries

Portfolio profile tests ensure that at least 90.0% of the portfolio will comprise senior secured assets. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The covenanted minimum weighted average recovery rate for assigning expected ratings is 69.5%. Fitch assigns Recovery Ratings to all assets in the initial portfolio.

Limited Interest Rate Risk

The notes pay on a floating index while 10.0% of the portfolio assets can be fixed rate. Fitch modelled a 10.0% fixed-rate bucket in its analysis and the rated notes can withstand the excess spread compression in a rising interest rate environment.

Limited FX Risk

Asset swaps are used to mitigate any currency risk on non-euro-denominated assets. The transaction is allowed to invest up to 10.0% of the portfolio in non-euro-denominated assets, provided that suitable asset swaps can be entered into.

RATING SENSITIVITIES

A 25% increase in the expected obligor default probability would lead to a downgrade of one to two notches for the rated notes. A 25% reduction in the expected recovery rates would lead to a downgrade of one to three notches for the rated notes.

Amendments to Documents

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 then current 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 the structure considers the confirmation to be given if Fitch declines to comment. Key Rating Drivers and additional Rating Sensitivities are further described in the accompanying new issue report

Link to Fitch Ratings' Report: Richmond Park CLO Limited

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