Overview
- We raised our ratings on BlueMountain EUR CLO 2016-1 DAC's class B-R, C-R, and D-R notes following our review of the transaction.
- At the same time, we affirmed our ratings on the class A-R, E-R, and F-R notes.
- BlueMountain EUR CLO 2016-1 is a European cash flow CLO transaction that securitizes loans granted to primarily speculative-grade corporate firms. The transaction is managed by Sound Point Capital Management, LP.
LONDON (S&P Global Ratings) April 8, 2024--S&P Global Ratings today raised its credit ratings on BlueMountain EUR CLO 2016-1 DAC's class B-R notes to 'AA+ (sf)' from 'AA (sf)', class C-R notes to 'AA (sf)' from 'A (sf)', and class D-R notes to 'A (sf)' from 'BBB (sf)'. At the same time, we affirmed our 'AAA (sf)' rating on the class A-R notes, our 'BB (sf)' rating on the class E-R notes, and our 'B- (sf)' rating on the class F-R notes.
Today's rating actions follow the application of our global corporate CLO criteria and our credit and cash flow analysis of the transaction based on the January 2024 trustee report.
Our ratings address timely payment of interest and ultimate payment of principal on the class A-R and B-R notes and ultimate payment of interest and principal on the class C-R, D-R, E-R, and F-R notes.
Since we reviewed the transaction in April 2018 (see "Related Research"):
- The portfolio's weighted-average rating is unchanged at 'B'.
- The portfolio has become more diversified since the closing analysis (the number of performing obligors has increased to 141 from 103).
- The portfolio's weighted-average life has decreased to 3.532 years from 5.945 years.
- The percentage of 'CCC' rated assets has increased to 5.52% from 2.48%.
Despite a slight deterioration in credit quality, the scenario default rates (SDRs) have decreased for all rating scenarios, mainly due to the reduction in the portfolio's weighted-average life to 3.532 years from 5.945 years and obligor and industry diversification in the portfolio.
Portfolio benchmarks | ||||||
---|---|---|---|---|---|---|
Current | Previous | |||||
SPWARF | 2,935.78 | 2,528.14 | ||||
Default rate dispersion (%) | 653.19 | 798.10 | ||||
Weighted-average life (years) | 3.532 | 5.945 | ||||
Obligor diversity measure | 122.88 | 87.49 | ||||
Industry diversity measure | 23.248 | 16.215 | ||||
Regional diversity measure | 1.369 | 1.931 | ||||
SPWARF--S&P Global Ratings' weighted-average rating factor. |
On the cash flow side:
- The transaction's reinvestment period ended in April 2022. The class A-R notes have deleveraged by €71.71 million since then.
- No class of notes is deferring interest.
- All coverage tests are passing as of the January 2024 trustee report.
Transaction key metrics | ||||||
---|---|---|---|---|---|---|
Current | Previous | |||||
Total collateral amount (mil. €)* | 325.70 | 400.00 | ||||
Defaulted assets (mil. €) | 3.09 | 0.00 | ||||
Number of performing obligors | 141 | 103 | ||||
Portfolio weighted-average rating | B | B | ||||
'CCC' assets (%) | 5.52 | 2.48 | ||||
'AAA' SDR (%) | 58.38 | 66.03 | ||||
'AAA' WARR (%) | 35.90 | 36.00 | ||||
*Performing assets plus cash and expected recoveries on defaulted assets. SDR--scenario default rate. WARR--Weighted-average recovery rate. |
Credit enhancement | ||||||||
---|---|---|---|---|---|---|---|---|
Class | Current amount (€) |
Current (%) (based on the January 2024 trustee report) |
Previous (%) | |||||
A-R | 163,492,599 | 49.80 | 41.20 | |||||
B-R | 50,000,000 | 34.45 | 28.70 | |||||
C-R | 26,400,000 | 26.35 | 22.10 | |||||
D-R | 21,800,000 | 19.65 | 16.65 | |||||
E-R | 25,000,000 | 11.98 | 10.40 | |||||
F-R | 11,200,000 | 8.54 | 7.60 | |||||
Sub | 44,200,000 | N/A | N/A | |||||
Credit enhancement = [Performing balance + cash balance + recovery on defaulted obligations (if any) – tranche balance (including tranche balance of all senior tranches)]/ [Performing balance + cash balance + recovery on defaulted obligations (if any)]. N/A--Not applicable. |
In our view, the portfolio is diversified across obligors, industries, and asset characteristics. The aggregate exposure to the top 10 obligors is now 13.42%. Hence, we have performed an additional scenario analysis by applying adjustments for spread and recovery compression. At the same time, almost 27% of the assets pay semiannually. The CLO has a smoothing account that helps to mitigate any frequency timing mismatch risks.
Based on the improved SDRs and continued deleveraging of the senior notes--which has increased available credit enhancement--we raised our ratings on the class B-R, C-R, and D-R notes, as the available credit enhancement is now commensurate with higher levels of stress.
At the same time, we affirmed our ratings on the class A-R, E-R, and F-R notes.
The cash flow analysis indicated higher ratings than those currently assigned for the class B-R, C-R, D-R, and E-R notes (without the above-mentioned additional sensitivity analysis). However, we have considered that the manager may still reinvest unscheduled redemption proceeds and sale proceeds from credit-impaired and credit-improved assets. Such reinvestments (as opposed to repayment of the liabilities), may prolong the repayment profile for the most senior class of notes. We also considered the portion of senior notes outstanding, the current macroeconomic environment, and these classes' seniority. Considering all of these factors, we raised our ratings on the class B-R notes by one notch and the class C-R and D-R notes by three notches and affirmed our rating on the class E-R notes.
Counterparty, operational, and legal risks are adequately mitigated in line with our criteria.
Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria (see "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions," published on Jan. 30, 2019).
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates In Structured Finance, Oct. 18, 2019
- Criteria | Structured Finance | CDOs: Global Methodology And Assumptions For CLOs And Corporate CDOs, June 21, 2019
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- Criteria | Structured Finance | General: Global Derivative Agreement Criteria, June 24, 2013
- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Weekly European CLO Update, March 27, 2024
- CLO Pulse Q2 2023: The 'Snooze Drag' Takes Hold In Europe, Sept. 28, 2023
- European Secured Debt Recovery Estimates Q1 2023: Refinancing Is Fueling Issuance, Recoveries Stable, July 13, 2023
- Credit Conditions Europe Q3 2023: The Slow Burn of Rising (Real) Rates, June 27, 2023
- Resilience Under Pressure Amid Tighter Financial Conditions, Sept. 26, 2023
- Leveraged Finance: A 10-Year Lookback At Actual Recoveries And Recovery Ratings, Feb. 4, 2019
- Ratings Assigned To Reset European Cash Flow CLO Transaction BlueMountain EUR CLO 2016-1, April 25, 2018
- 2017 EMEA Structured Credit Scenario And Sensitivity Analysis, July 6, 2017
- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
Primary Credit Analyst: | Parashar Tendolkar, London +44 20 7176 4173; Parashar.Tendolkar@spglobal.com |
Secondary Contacts: | Shane Ryan, London + 44 20 7176 3461; shane.ryan@spglobal.com |
Emanuele Tamburrano, London + 44 20 7176 3825; emanuele.tamburrano@spglobal.com |
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