| Ratings List | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class | Rating | Amount (mil. €) | Subordination (%) | Interest rate* | ||||||
| X | AAA (sf) | 2.0 | N/A | Three/six-month EURIBOR plus 0.35% | ||||||
| A | AAA (sf) | 244.00 | 39.00 | Three/six-month EURIBOR plus 0.92% | ||||||
| B-1 | AA (sf) | 14.00 | 28.00 | Three/six-month EURIBOR plus 1.60% | ||||||
| B-2 | AA (sf) | 30.00 | 28.00 | 1.90% | ||||||
| C-1 | A (sf) | 22.50 | 20.50 | Three/six-month EURIBOR plus 2.00% | ||||||
| C-2 | A (sf) | 7.50 | 20.50 | 2.10% | ||||||
| D | BBB (sf) | 24.00 | 14.50 | Three/six-month EURIBOR plus 3.20% | ||||||
| E | BB- (sf) | 20.00 | 9.50 | Three/six-month EURIBOR plus 5.32% | ||||||
| F | B- (sf) | 11.00 | 6.75 | Three/six-month EURIBOR plus 8.05% | ||||||
| Sub Notes | NR | 35.65 | N/A | N/A | ||||||
| *The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A—-Not applicable. | ||||||||||
Overview
- St. Paul's CLO XII DAC is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Intermediate Capital Managers Ltd. will manage the transaction.
- We have assigned our ratings to the class X, A, B-1, B-2, C-1, C-2, D, E, and F notes.
- The ratings reflect our view of the transaction's diversified collateral pool, credit enhancement, and legal structure, among other factors.
LONDON (S&P Global Ratings) April 15, 2020--S&P Global Ratings today assigned its credit ratings to St. Paul's CLO XII DAC's class X, A, B-1, B-2, C-1, C-2, D, E, and F notes. At closing, the issuer also issued unrated subordinated notes (see list above).
Under the transaction documents, the rated notes pay quarterly interest unless there is a frequency switch event. Following this, the notes will switch to semiannual payment.
The portfolio's reinvestment period will end approximately 4.5 years after closing, and the portfolio's maximum average maturity date is approximately 8.5 years after closing.
The ratings assigned to the notes reflect our assessment of:
- The diversified collateral pool, which consists primarily of broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests.
- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization.
- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading.
| Portfolio Benchmarks | |
|---|---|
| Current | |
| S&P Global Ratings weighted-average rating factor | 2,678.32 |
| Default rate dispersion | 481.96 |
| Weighted-average life (years) | 5.67 |
| Obligor diversity measure | 99.44 |
| Industry diversity measure | 18.01 |
| Regional diversity measure | 1.34 |
| Transaction Key Metrics | |
|---|---|
| Current | |
| Total par amount (mil. €) | 400 |
| Defaulted assets (mil. €) | 0 |
| Number of performing obligors | 124 |
| Portfolio weighted-average rating derived from our CDO evaluator | 'B' |
| 'CCC' category rated assets (%) | 1.50 |
| Covenanted 'AAA' weighted-average recovery (%) | 35.53 |
| Covenanted weighted-average spread (%) | 3.50 |
| Covenanted weighted-average coupon (%) | 4.75 |
Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio will be well-diversified on the effective date, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow collateralized debt obligations (see "Global Methodology And Assumptions For CLOs And Corporate CDOs," published on June 21, 2019).
In our cash flow analysis, we used the €400 million par amount, the covenanted weighted-average spread of 3.50%, the covenanted weighted-average coupon of 4.75%, and the covenanted weighted-average recovery rates for all rating levels. 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.
The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria (see "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019).
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).
At closing, we considered that the transaction's legal structure is bankruptcy remote, in line with our legal criteria (see "Structured Finance: Asset Isolation And Special-Purpose Entity Methodology," published on March 29, 2017).
Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1 to F notes could withstand stresses commensurate with higher rating levels than those we have assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our assigned ratings on the notes. In our view, the portfolio is granular in nature, and well-diversified across obligors, industries, and asset characteristics when compared to other CLO transactions we have rated recently. As such, we have not applied any additional scenario and sensitivity analysis when assigning ratings to any classes of notes in this transaction.
Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our ratings are commensurate with the available credit enhancement for all of the rated classes of notes.
In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class X to E notes to five of the 10 hypothetical scenarios we looked at in our recent publication (see "How Credit Distress Due To COVID-19 Could Affect European CLO Ratings," published on April 2, 2020). The results are shown in the chart below.
As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes (see "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published on Oct. 1, 2012).
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
St. Paul's CLO XII DAC is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Intermediate Capital Managers Ltd. will manage the transaction.
Related Criteria
- 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
- General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013
- 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: Methodology: Credit Stability Criteria, May 3, 2010
Related Research
- European CLO Performance Index Report Q4 2019, March 24, 2020
- 2017 EMEA Structured Credit Scenario And Sensitivity Analysis, July 6, 2017
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
| Primary Credit Analyst: | Sandeep Chana, London (44) 20-7176-3923; sandeep.chana@spglobal.com |
| Secondary Contact: | Matteo Breviglieri, London (44) 20-7176-8495; Matteo.Breviglieri@spglobal.com |
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