/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/210217.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Wednesday, February 17, 2021, Vol. 22, No. 29 Headlines B E L G I U M NECKERMANN: Has Until February 22 to Solve Cash Problems ONTEX GROUP: Moody's Lowers CFR to B1 & Alters Outlook to Stable [*] BELGIUM: Extends Bankruptcy Moratorium on Heavily Indebted Cos. F R A N C E [*] FRANCE: EU Commission Set to Sign Off Corporate Recovery Plan G E R M A N Y ALPHA GROUP: Fitch Puts 'CCC' LongTerm IDR on Watch Negative GRUENENTHAL GMBH: Deutsche Bank Scraps Plan to Sell Debt TECHEM VERWALTUNGSGESELLSCHAFT: Moody's Completes Ratings Review I R E L A N D AVOCA CLO XX: Fitch Affirms B- Rating on Class F Notes BLUEMOUNTAIN FUJI II: Moody's Upgrades Class F Notes to B1 BLUEMOUNTAIN FUJI II: S&P Affirms B- Rating on Cl. F Certs CONTEGO CLO VII: Fitch Affirms B- Rating on Class F Notes CVC CORDATUS XV: Fitch Affirms B- Rating on Class F Notes LAURELIN DAC 2016-1: Fitch Affirms B- Rating on Class F-R Notes MAN GLG II: Fitch Affirms B- Rating on Class F Notes MAN GLG V: Fitch Affirms B- Rating on Class F Notes OAK HILL VIII: Moody's Gives '(P)Ba3' Rating to Class E Notes OZLME IV: Fitch Affirms B- Rating on Class F Debt SORRENTO PARK: Fitch Affirms B- Rating on Class E Notes TIKEHAU CLO DAC: Moody's Affirms B2 Rating on Class F-R Notes TIKEHAU CLO: Fitch Affirms B Rating to Class F-R Notes TORO EURO 4: Fitch Affirms B- Rating on Class F-R Notes I T A L Y 2WORLDS SRL: DBRS Lowers Class B Notes Rating to CCC LEVITICUS SPV: DBRS Lowers Class A Notes Rating to BB L U X E M B O U R G ARVOS MIDCO: Moody's Hikes Prob. of Default Rating to Caa1-PD/LD N E T H E R L A N D S PRINCESS JULIANA AIRPORT: Moody's Puts Ba3 on $142M Notes on Review WERELDHAVE NV: Moody's Affirms B1 CFR, Alters Outlook to Stable N O R W A Y B2HOLDING ASA: S&P Alters Outlook to Stable & Affirms 'B+' ICR HURTIGRUTEN GROUP: Moody's Completes Review, Retains Caa1 Rating SECTOR ALARM: Moody's Completes Review, Retains B1 CFR S P A I N CAIXABANK LEASINGS 3: Moody's Affirms B1 Rating on Serie B Notes S W E D E N IGT HOLDING IV: S&P Raises LongTerm ICR to 'B', Outlook Stable T U R K E Y [*] TURKEY: Top Airports Seek Government Support Amid Pandemic U N I T E D K I N G D O M CARLYLE GLOBAL 2014-1: Fitch Affirms B- Rating on Class F-RR Notes EMERALD 2 LIMITED: Moody's Completes Review, Retains B2 CFR ENQUEST PLC: S&P Places 'CCC+' ICR on CreditWatch Positive INSPIRED ENTERTAINMENT: Moody's Completes Ratings Review STRATTON MORTGAGE 2021-1: Fitch Assigns BB Rating on Class E Debt STRATTON MORTGAGE 2021-1: S&P Assigns Prelim. BB Rating on E Notes TAURUS 2021-1: Moody's Gives (P)Ba3 Rating to GBP33M Class E Notes VUE INTERNATIONAL: Moody's Completes Review, Retains Caa2 Rating [*] Moody's Upgrades Ratings on 11 Notes of 3 UK RMBS Transactions - - - - - ============= B E L G I U M ============= NECKERMANN: Has Until February 22 to Solve Cash Problems -------------------------------------------------------- The Brussels Times reports that the board of the tour operator Neckermann, which runs a chain of travel agents across Belgium, has given itself until Feb. 22 to solve its cash problems or declare bankruptcy. According to The Brussels Times, the deadline is a last-ditch effort to save the company, and the jobs of its 150 employees. In 2019, Neckermann Belgium was saved from the brink of bankruptcy after the collapse of the British parent company Thomas Cook when 62 of the 91 branches were taken over by Spanish tour company Wamos and rebranded as Neckermann, The Brussels Times recounts. Now Wamos is itself in trouble, in common with the rest of the holiday industry, as a result of the coronavirus pandemic, The Brussels Times notes. At the end of the year, Neckermann was about to file for protection from its creditors, when Wamos threw a lifeline, promising EUR3.5 million, The Brussels Times relates. "Only EUR100,000 of that money has been deposited a few times, but we still have to wait for the main balance," The Brussels Times quotes Els De Coster of the liberal trade union CGSLB as saying. Speaking to De Tijd, CEO Laurent Allardin explained that the money was never supposed to come in one lump sum, The Brussels Times relays. However he did admit that a transfer of one million euros due to arrive at the beginning of February had not arrived, The Brussels Times discloses. The Spanish parent explained to him that they are waiting for state support from the Spanish government, The Brussels Times states. The clock is now ticking down to Feb. 22 by which time money will need to have come in from somewhere, whether Madrid or anywhere else, according to The Brussels Times. Mr. Allardin has ruled out any help from the Belgian government at this time, The Brussels Times notes. The agencies are currently closed, and staff on temporary unemployment, The Brussels Times states. But there are still costs to be paid: rent on premises, running costs like phone and internet, not to mention the sums that still have to be paid as part of the original agreement with creditors, The Brussels Times says. ONTEX GROUP: Moody's Lowers CFR to B1 & Alters Outlook to Stable ---------------------------------------------------------------- Moody's Investors Service has downgraded Ontex Group NV's corporate family rating to B1 from Ba3 and its probability of default rating to B1-PD from Ba3-PD. The outlook on the ratings has changed to stable from negative. "The rating downgrade reflects Ontex's continued weak operating performance because savings from the transformation plan have been largely offset by negative foreign currency impact and price and volume pressure because of high competition. As a result, we expect credit metrics to remain weaker than previously anticipated for the next 2 years" says Lorenzo Re, a Moody's Vice President -- Senior Analyst and lead analyst for Ontex. "In addition, Ontex will need to address the refinancing of its large 2022 maturities in a timely manner in order to maintain its adequate liquidity," Mr. Re added. RATINGS RATIONALE The rating downgrade to B1 reflects Ontex's slower than expected improvement in operating performance in 2020 notwithstanding the cost savings from the transformation plan, and Moody's expectation that the company's credit metrics will remain weak for next 18-24 months, with leverage remaining between 4.5x and 5.0x Ontex's operating performance continues to be impaired by (1) strong competition resulting in lower volume sales, especially in Europe and in the baby care segment, and higher marketing costs to support sales; and (2) negative impact from foreign currency exchange, which will largely offset the benefit from lower raw material costs and the cost savings from the company's T2G transformation plan. As a result, Moody's expects 2020 sales to decline by 8%-9% from 2019 level. More positively, Moody's also expects the company's reported EBTDA to modestly improve to close to EUR200 million (EUR175 million in 2019), mainly because of lower one-off costs. The improvement will be however below previous expectations. Furthermore in H2 2020, the company's announced additional cost cutting measures and a strategic review of its operations. However, Moody's expects that the company's will be challenged to solve its structural weaknesses stemming from its large presence in some emerging markets, which results in a material exposure to raw material and foreign currency exchange volatility. Therefore, Moody's also forecasts that further EBITDA improvements will be modest and slower than previously anticipated, with Moody's adjusted EBITDA remaining between EUR240 million-EUR250 million over the next 24 months. As a result, Moody's expects Ontex's leverage to remain around 4.8x in 2021 and 2022, which is higher than the 4.5x previously indicated to maintain the Ba3 rating. Moody's also expect that free cash flow will remain weak at EUR25 million-EUR30 million per year in the next 24 months. Ontex's rating continues to be supported by the company's: (1) solid market position in the production of retailer brand hygienic disposable products in Europe; and (2) good product and geographical diversification. However, the rating also reflects the price-competitive nature of the industry and a degree of customer concentration. LIQUIDITY Ontex's liquidity is adequate, supported by EUR424 million in cash as of June 2020 including the full drawing under the EUR300 million RCF. In addition, the company can count on a EUR100 million accordion facility available under the EUR250 million term loan facility maturing in 2024. Moody's expects the company's free cash flow to improve to around EUR30 million in 2021, thanks to lower one-off costs. Moody's therefore expect the available liquidity to cover the company's cash needs. However, the RCF and the Term Loan B facility include a net leverage maintenance covenant and Moody's estimates the headroom under this covenant to be limited at 10%-15% which leaves limited capacity for underperformance. Moreover, the company has a debt maturity wall in September 2022 when both the EUR600 million Term Loan B and RCF become due and we expect the company to manage proactively the refinancing at least one year ahead of maturity. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's expectation that Ontex's operating performance will modestly recover over the next 12 to 18 months, resulting in a stabilization in credit metrics, with leverage remaining between 4.5x and 5.0x. The stable outlook assumes that the company will maintain adequate liquidity and will refinance its 2022 maturities in a timely manner. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive pressure on the ratings could develop overtime in case of (1) a material improvement in operating performance and profitability, with EBITA margin trending toward high single digit in percentage terms; (2) Moody's-adjusted (gross) Debt/EBITDA declines below 4.5x on a sustained basis. The ratings could be downgraded in case of (1) further deterioration in operating performance, leading to negative or very modest free cash flow generation; (2) a deterioration in the liquidity profile, stemming from the reduced capacity under the financial covenants or from the failure to address the refinancing of the 2022 maturities in a timely manner; or (3) a sustained deterioration in credit metrics, such that Moody's-adjusted (gross) Debt/EBITDA increases to above 5.25x. LIST OF AFFECTED RATINGS Issuer: Ontex Group NV Downgrades: Probability of Default Rating, Downgraded to B1-PD from Ba3-PD LT Corporate Family Rating, Downgraded to B1 from Ba3 Outlook Action: Outlook, Changed To Stable From Negative PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020. COMPANY PROFILE Ontex Group NV, headquartered in Aalst-Erembodegem, Belgium, is a leading manufacturer of branded and retailer-branded hygienic disposable products across Europe, the Americas, the Middle East and Africa. Ontex operates in three product categories: baby care, adult incontinence and feminine care. Ontex generated net sales of around EUR2.3 billion in 2019 and EBITDA of EUR236 million (Moody's-adjusted). Ontex is a public company listed on the Euronext Brussels stock exchange. [*] BELGIUM: Extends Bankruptcy Moratorium on Heavily Indebted Cos. ------------------------------------------------------------------- The Brussels Times reports that the tax authorities and National Social Security Office, ONSS, have agreed, for the moment, not to declare businesses that are too heavily indebted bankrupt, Justice Minister Vincent Van Quickenborne told the Chamber's Economic Affairs Commission. According to The Brussels Times, a moratorium on bankruptcies ended on Feb. 8 and Parliament is yet to approve a new bill on the judicial reorganization procedure. Amendments to a text prepared by the Government were submitted only on Feb. 12, The Brussels Times notes. Some parliamentarians asked for the moratorium to be extended at least until a new law that eases the judicial reorganization of businesses and makes it cheaper to do, The Brussels Times discloses. However, the Government felt that too long a moratorium could endanger business that are in good shape and have debt claims to pursue, and keep afloat dying businesses that then go on to pile up debts, The Brussels Times states. Responding to parliamentarians' queries, he however, gave the assurance that the Finance Department and the ONSS, which receive social contributions, would not move to have businesses that default on payments declared bankrupt, The Brussels Times relays. Not everyone in the Chamber was satisfied, according to The Brussels Times. Maxime Prevot (CdH) insisted that there was a difference between the situation at the end of the first moratorium, in June, after the first wave of the pandemic, and the second moratorium, The Brussels Times relates. "At the end of the first moratorium, businesses still had reserves," she recalled, "But here, in February, these reserves have dried up and we no longer face a problem of profitability but one of solvency. Many businesses today face an existential question: whether to continue their activity or not." According to The Brussels Times, for the labour party, PTB, the position of the Belgian business federation, FEB, which is calling for an end to the moratorium, is being given precedence over that of the Union of Middle Classes, UCM, which represents small companies and self-employed businesses, and wants the moratorium extended. The Council of State will be contacted urgently on the amendments, and a plenary vote could be held on March 4, The Brussels Times discloses. =========== F R A N C E =========== [*] FRANCE: EU Commission Set to Sign Off Corporate Recovery Plan ----------------------------------------------------------------- Ania Nussbaum at Bloomberg News reports that France is optimistic that the European Commission will sign off within days on an innovative plan for helping companies through the post-pandemic recovery, according to a finance ministry official, who asked not to be identified. According to Bloomberg, the French government has proposed a program to partially guarantee billions of euros of so-called participatory loans to improve corporate balance sheets and encourage borrowing for investment. The scheme is intended to benefit companies with long-term prospects, Bloomberg discloses. The instrument, which is supported by the French central bank, is essentially a blend of debt and equity -- and a crucial plank of the recovery strategy, Bloomberg states. The government is concerned that high debt levels built up during the pandemic not only put firms at risk of default, but also constrain their ability to borrow and invest, according to Bloomberg. France, Bloomberg says, is also considering transforming some state-guaranteed loans into grants to help the hardest-hit companies. The nation has issued about EUR130 billion (US$158 billion) of state-guaranteed loans, mainly to help small companies through the pandemic lockdowns, Bloomberg relates. With the crisis continuing, some have sounded the alarm over their ability to repay the money, Bloomberg notes. ============= G E R M A N Y ============= ALPHA GROUP: Fitch Puts 'CCC' LongTerm IDR on Watch Negative ------------------------------------------------------------ Fitch Ratings has placed Alpha Group SARL's Long-Term Issuer Default Rating (IDR) of 'CCC' on Rating Watch Negative (RWN). Alpha Group SARL is the top entity in a restricted group that owns A&O, a Germany-based youth travel hotel and hostel operator with a network of leased and owned properties in major European cities. The RWN reflects the risk that A&O's liquidity may be exhausted by May 2021 unless new external funds are injected. Renewed lockdowns in most European countries since Fitch’s last review in October 2020, including in Germany, have deteriorated A&O' prospects for 2021 more than Fitch anticipated. The resolution of the RWN will be subject to the rebuilding of a liquidity position allowing both debt service and the running of operations during the next 12 months. KEY RATING DRIVERS Potential Unfunded Liquidity in 2021: The group drew on its EUR35 million revolving credit facility (RCF) to cover operating losses during the first months of 2020. The long-lasting absence of school groups in 2021 after the resurgence of the pandemic and lockdowns in Europe is largely affecting cash flow generation. As a result, Fitch forecasts exhaustion of the liquidity buffer by June 2021, putting at risk interest payments due in March and June, unless external support such as equity injections or other external funds are received before end-May 2021, which informs the RWN. High Exposure to Coronavirus Disruption: On top of potential liquidity needs, the rating also reflects the resurgence of the pandemic since 4Q20 in several European countries, including Germany, accentuated by a third wave in 1Q21. As a result, Fitch expects revenue per available bed (RevPAB) to be still at least 55% below pre-coronavirus levels for this segment. Furlough support to soften the economic shock on the company's cost structure has been incorporated in Fitch’s assumptions. EBITDA Loss Projected for 2021: Fitch projects a still negative EBITDA in 2021 following a ban on school trips until the end of the school year. With group travel contributing about 35% of A&O's sales and more than two thirds of EBITDA generated during spring, Fitch conservatively projects only a very mild recovery in 2021. Fitch's rating case does not incorporate any direct subsidy from the federal government as the form and quantity of these grants are still unknown. Leverage Unsustainable: Fitch forecasts free cash flow (FCF) will remain materially negative in 2021 due to operating losses and maintenance capex. This will hinder A&O's deleveraging capacity, particularly as it has increased its indebtedness by fully drawing down on its RCF. Fitch currently estimates that A&O will not be able to make debt prepayments, in the absence of a clean-down provision or contractual RCF repayment requirements prior to final maturity in 2024. Fitch forecasts FFO adjusted leverage should stay sustainably above 10x through to 2022, which Fitch regards as unsustainable for the business. Covenant Breaches Waived: The springing leverage covenant in the senior facility agreement was waived on 22 May 2020 until June 2021 in lieu of a minimum EUR10 million liquidity covenant, which the company is currently aiming to extend. Given the group's limited exposure at risk, Fitch sees little incentives for the lenders to declare an event of default and provoke a cross-default with A&O's term loan B. At the same time, the inability to cure, waive or reset the covenant threshold going forward or if the minimum liquidity is not adhered to as projected by Fitch, will have a negative impact on A&O's ratings. Business Model Intact: A&O continues to display an attractive lodging option for large and small groups in several cities across Europe, coupled with an efficiently managed low-cost base. Once the current crisis abates, A&O has the potential to capitalise on supportive market trends and grow into a Europe-wide brand benefiting from a switch by travellers towards budget alternatives and their lower-than-average break-even occupancies. However, because of the pandemic, Fitch only expects the group would be able to exploit its growth potential beyond 2022. DERIVATION SUMMARY A&O is one of the largest hostel chains in Europe with a strong market position in Germany, where demand is underpinned by the national policy of annual school trips, with groups contributing over a third of its sales pre-pandemic. A&O has consistently grown over the past 10 years on the back of a carefully selected roll-out strategy with two new assets a year and positive underlying market trends for affordable trips and intra-Europe youth travel. However, it still ranks significantly behind such global peers as NH Hotels Group S.A. (B-/Negative), Radisson Hospitality AB (rating withdrawn) or Whitbread PLC (BBB-/Stable) in activities and number of rooms. A&O's prior capex programme directed towards asset expansion and enhancement (2017-2019) should allow A&O to consolidate its position as a reference European hostel operator in the aftermath of the pandemic. Based on daily rates, A&O is one of the cheapest options for travelers, particularly compared with other urban operators in the economy (Accor SA (BB+/Stable) and Travelodge) or midscale (NH Hotels, Radisson and Whitbread) segments. A&O's profitability is structurally above that of other players with a similar portfolio mix, but still far from leaders such as Marriott International, Inc. and likely to deteriorate more than the industry, considering their dependence on school trips and the social distancing measures imposed as a result of the coronavirus pandemic. The delayed recovery of travellers' flows made A&O's FFO-adjusted gross leverage to be projected consistently above 10x, which is in line with a 'CCC' rating. Pressured liquidity and high leverage, together with the vulnerability of group trips and a much smaller scale, justify the difference from peers' ratings. KEY ASSUMPTIONS -- Revenue 55% behind 2019 in 2021, driven by a reduction of RevPAB -- Negative EBITDA in 2021 as a result of the inability to fully cover the cost base due to a drop in activity levels, with EBITDA margins not reaching 25% before 2022 -- Capex reduced to minimum maintenance estimated at EUR3 million in 2021 -- No dividend distributions RECOVERY ASSUMPTIONS: -- Fitch estimates that A&O would be liquidated in bankruptcy rather than restructured on a going-concern basis -- 10% administrative claim -- The liquidation estimate reflects Fitch's view of the hotel properties (valued by an external third party in 2017) and other assets that can be realised in a liquidation and distributed to creditors upon default -- 55% advance rate applied to the value of owned properties based on third-party valuations These assumptions result in a recovery rate for the senior secured debt within the 'RR3' range leading to a one-notch uplift to the debt rating to 'CCC+' from the IDR. The principal waterfall analysis output percentage on current metrics and assumptions is 66% (unchanged). RATING SENSITIVITIES Factors that could, individually or collectively, lead to a positive rating action/upgrade: -- An enhanced liquidity buffer allowing the funding of A&O's operations over the next 12-24 months, by capital injection and a covenant waiver extension, along with a reduced pace of cash burn -- FFO adjusted gross leverage returning below 10x by 2022 -- EBITDAR/(gross interest plus rents) above 1.5x on a sustained basis with FCF turning break-even Factors that could, individually or collectively, lead to a negative rating action/downgrade: -- Further liquidity deterioration in 1H21 with uncertain prospects of securing additional liquidity by May 2021 -- Increasing FCF outflows through 2021 -- EBITDAR/(gross interest plus rents) weakening towards 1.0x on a sustained basis BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Insufficient liquidity: A&O had EUR25 million of unrestricted cash on its balance sheet at end-January 2021. Based on Fitch’s pandemic-related downturn scenario, Fitch projects that RCF of EUR35 million will remain fully drawn in 2021, leaving the company with scarce liquidity to address the sharper fall in demand in 1H21 that resulted from the new lockdowns across Europe. As a result, liquidity is expected to be exhausted by 1H21 if the company is unable to raise additional funds. For the purpose of Fitch’s liquidity analysis, Fitch has excluded EUR3 million of cash (considered restricted cash), blocked as a deposit for landlords or required in daily operations not available for debt servicing. A&O has a concentrated funding structure with its RCF maturing in January 2024 and a term loan B of EUR300 million due in January 2025. GRUENENTHAL GMBH: Deutsche Bank Scraps Plan to Sell Debt -------------------------------------------------------- Ruth McGavin and Laura Benitez at Bloomberg News report that Deutsche Bank AG has scrapped its plan to sell hundreds of millions of euros of debt for German pharmaceutical company Gruenenthal GmbH due to a lack of interest from investors, according to people familiar with the matter. According to Bloomberg, the loan was intended to replace some of the company's existing financing. The family-owned business, which makes painkillers including opioid drugs such as Tramadol, had unsecured term loans and Schuldschein worth EUR935 million (US$1.13 billion) due to mature this year, Bloomberg data show. The people said Deutsche Bank had approached potential investors to gauge interest for the financing but failed to attract sufficient demand to sell the deal, Bloomberg relates. They added fund managers are cautious about taking exposure to a company that makes opioid products due to the risk these products carry of addiction and abuse, Bloomberg notes. Gruenenthal said in a statement on Feb. 12 the cpmpany has agreed instead to extend a EUR535 million term loan facility with its bank lenders, Bloomberg recounts. The company, as cited by Bloomberg, said the debt extension was agreed following its acquisition of the European rights of Crestor, a treatment to lower cholesterol, in February. TECHEM VERWALTUNGSGESELLSCHAFT: Moody's Completes Ratings Review ---------------------------------------------------------------- Moody's Investors Service has completed a periodic review of the ratings of Techem Verwaltungsgesellschaft 674 mbH and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review discussion held on February 11, 2021 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since January 1, 2019, Moody's practice has been to issue a press release following each periodic review to announce its completion. This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. Key rating considerations The B2 corporate family rating of Techem Verwaltungsgesellschaft 674 mbH (Techem) reflects the company's good revenue visibility and stability because of the non-discretionary nature of demand for energy services, long-term contracts with customers and a supportive regulatory environment; solid market position, with strong customer loyalty and high barriers to entry because of the significant investment requirements to replicate Techem's business model; strong profitability, with Moody's-adjusted EBITDA margin of 43.7% for the twelve months that ended September 2020; and positive free cash flow (FCF) generation, which could be used for debt repayments. The rating is constrained by the lower profitability of Techem's energy contracting business; the company's modest geographical diversification, with around 27% of group revenue being generated outside Germany; and the group's very high Moody's-adjusted leverage ratio of 8.3x for the 12 months that ended September 2020. The principal methodology used for this review was Business and Consumer Service Industry published in October 2016. ============= I R E L A N D ============= AVOCA CLO XX: Fitch Affirms B- Rating on Class F Notes ------------------------------------------------------ Fitch Ratings has affirmed the ratings of all tranches of Avoca CLO XX Designated Activity Company and revised the Outlooks on the Class D, E and F notes to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- Avoca CLO XX DAC A-1 XS1970746399 LT AAAsf Affirmed AAAsf A-2 XS1970746985 LT AAAsf Affirmed AAAsf B-1 XS1970747447 LT AAsf Affirmed AAsf B-2 XS1970748171 LT AAsf Affirmed AAsf C-1 XS1970748767 LT Asf Affirmed Asf C-2 XS1974338763 LT Asf Affirmed Asf D-1 XS1970749492 LT BBB-sf Affirmed BBB-sf D-2 XS1974382316 LT BBB-sf Affirmed BBB-sf E XS1970749732 LT BB-sf Affirmed BB-sf F XS1970749815 LT B-sf Affirmed B-sf X XS1970746043 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY The transaction is cash flow CLOs, mostly comprising senior secured obligations. The deal is within the reinvestment period and is actively managed by KKR Credit Advisors. KEY RATING DRIVERS Asset Performance Stable Asset performance has been stable since the last review. As per the trustee report dated 31 December 2020, the deal is below target par by 36bp and all coverage tests, portfolio profile tests and Fitch-related collateral quality tests are passing, except for the Fitch weighted average rating factor (WARF) test and the Fitch 'CCC' limit test. Exposure to assets with a Fitch-derived rating of 'CCC+' and below, as calculated by Fitch as of 6 February 2021, is 7.89% (or 8.33% including the unrated names, which Fitch treats as 'CCC' per its methodology, while the manager can classify as 'B-' for up to 10% of the portfolio), compared with the 7.5% limit. Resilience to Coronavirus Stress The affirmations reflect the broadly stable portfolio credit quality since the last review. The Stable Outlooks on investment-grade notes, and the revision of the Outlooks on the class D, E and F notes to Stable from Negative reflect the default rate cushion or a marginal shortfall for the class F notes, in the sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus pandemic stress scenario to assume half of the corporate exposure on the Negative Outlook is downgraded by one notch instead of 100%. For more details on Fitch’s pandemic-related stresses see "Fitch Ratings Expects to Revise Significant Share of CLO Outlooks to Stable", published 22 January 2021. 'B'/'B-'Portfolio Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. As at 6 February 2021, the Fitch-calculated WARF of the portfolio is 35.27 compared to the trustee-reported WARF at 35.28. High Recovery Expectations Senior secured obligations make up 98.20% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. As per the latest trustee report, the Fitch weighted average recovery rate of the portfolio is 64.5%. Portfolio Well Diversified The portfolio is well diversified across obligors, countries and industries. The top 10 obligor concentration is no more than 13.71%, and no obligor represents more than 1.5% of the portfolio balance. The top Fitch industry and the top three Fitch industry concentrations are also within the defined limits of 17.5% and 40%, respectively. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. Upgrades may occur after the end of the reinvestment period on better-than expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook (representing 25.6% of the portfolio). This scenario does not result in downgrades across the capital structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Avoca CLO XX DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. BLUEMOUNTAIN FUJI II: Moody's Upgrades Class F Notes to B1 ---------------------------------------------------------- Moody's Investors Service announced that it has assigned the following definitive ratings to refinancing notes, affirmed the original Class E notes and upgraded Class F notes issued by BlueMountain Fuji EUR CLO II Designated Activity Company (the "Issuer"): EUR207,800,000 Class A Senior Secured Floating Rate Notes due 2030, Assigned Aaa (sf) EUR44,700,000 Class B Senior Secured Floating Rate Notes due 2030, Assigned Aa1 (sf) EUR20,600,000 Class C Deferrable Mezzanine Floating Rate Notes due 2030, Assigned A1 (sf) EUR17,500,000 Class D Deferrable Mezzanine Floating Rate Notes due 2030, Assigned Baa1 (sf) EUR 22,500,000 Class E Deferrable Junior Floating Rate Notes due 2030, Affirmed Ba2 (sf); previously on Oct 2, 2020 Confirmed at Ba2 (sf) EUR 9,800,000 Class F Deferrable Junior Floating Rate Notes due 2030, Upgraded to B1 (sf); previously on Oct 2, 2020 Confirmed at B2 (sf) RATINGS RATIONALE The rationale for the ratings is based on a consideration of the risks associated with the CLO's portfolio and structure as described in our methodology. Moody's rating affirmation of the Class E Notes is primarily a result of the refinancing, which has no impact on the rating of the notes. Moody's upgrade of the Class F Notes is primarily a result of the refinancing, which increases excess spread available as credit enhancement to the rated notes. The Issuer issued the refinancing notes in connection with the refinancing of the following classes of notes: Class A Notes, Class B Notes, Class C Notes and Class D Notes due 2030 (the "Original Notes"), previously issued on June 28, 2017 (the "Original Closing Date"). On the refinancing date, the Issuer has used the proceeds from the issuance of the refinancing notes to redeem in full the Original Notes. On the Original Closing Date, the Issuer also issued EUR 35.8 million of subordinated notes, which will remain outstanding. As part of this refinancing, the Issuer has extended and the weighted average life by 12 months to 5.4 years. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of secured senior loans or senior secured bonds and up to 10% of the portfolio may consist of unsecured senior loans, second-lien loans, high yield bonds and mezzanine loans. The underlying portfolio is fully ramped as of the closing date. BlueMountain Fuji Management, LLC acting through its Series A ("BlueMountain A") will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's 5 month reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations and credit improved obligations. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of corporate assets from the current weak European economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2020. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2020. Moody's used the following base-case modeling assumptions: Performing par and principal proceeds balance EUR 348,664,133 Defaulted Par: EUR 2,887,333.33 as of 5th Jan 2021 Diversity Score: 57 Weighted Average Rating Factor (WARF): 3,201 Weighted Average Spread (WAS): 3.56% Weighted Average Coupon (WAC): 5.03% Weighted Average Recovery Rate (WARR): 45.8% Weighted Average Life (WAL): 5.4 years BLUEMOUNTAIN FUJI II: S&P Affirms B- Rating on Cl. F Certs ---------------------------------------------------------- S&P Global Ratings assigned its credit ratings to BlueMountain Fuji EUR CLO II DAC's class A-R, B-R, C-R, and D-R notes. At the same time, we have affirmed our ratings on the class E and F notes. On Feb. 12, 2021, the issuer refinanced the original class A, B, C, and D notes by issuing replacement notes of the same notional. The replacement notes are largely subject to the same terms and conditions as the original notes, except for the following: -- The replacement notes have a lower spread over Euro Interbank Offered Rate (EURIBOR) than the original notes. -- The portfolio's maximum weighted-average life has been extended by one year. The ratings assigned to BlueMountain Fuji EUR CLO II's refinanced notes reflect S&P's 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. -- The transaction's legal structure, which is bankruptcy remote. -- The transaction's counterparty risks, which is in line with our counterparty rating framework. Under the transaction documents, the rated notes will pay quarterly interest unless there is a frequency switch event. Following this, the notes will permanently switch to semiannual payment. The portfolio's reinvestment period will end in July 2021. S&P said, "In our cash flow analysis, we used a EUR349.07 million adjusted collateral principal amount, the weighted-average spread (3.61%), the weighted-average coupon (5.21%), the covenanted fixed-rate asset bucket (10%) and floating-rate bucket (90%), and the 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. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B-R to E notes could withstand stresses commensurate with higher ratings than those we have assigned. However, as the CLO is 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 assets. The class A-R and F notes can withstand stresses commensurate with their current rating levels." Elavon Financial Services DAC is the bank account provider and custodian. Its documented downgrade remedies are in line with our counterparty criteria. S&P said, "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. "We consider that the transaction's legal structure to be bankruptcy remote, in line with our legal criteria. "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 the refinanced class A-R, B-R, C-R, and D-R notes, and the unaffected class E and F notes. We have therefore affirmed our ratings on the class E and F notes." As vaccine rollouts in several countries continue, S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic and its economic effects. Widespread immunization, which certain countries might achieve by midyear, will help pave the way for a return to more normal levels of social and economic activity. S&P said, "We use this assumption about vaccine timing in assessing the economic and credit implications associated with the pandemic. As the situation evolves, we will update our assumptions and estimates accordingly." S&P said, "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 A to E notes to five of the 10 hypothetical scenarios we looked at in our recent publication." S&P said, "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." BlueMountain Fuji EUR CLO II is a broadly syndicated collateralized loan obligation (CLO) managed by BlueMountain Fuji Management LLC. Ratings List Class Rating Amount Replacement Original Subordi- (mil.EUR) Notes Notes nation int. rate int. rate % ----- ------ --------- ----------- --------- -------- A-R AAA (sf) 207.80 3-Mo. EURIBOR 3-Mo. EURIBOR 40.50 plus 0.65% plus 0.89 B-R AA (sf) 44.70 3-Mo. EURIBOR 3-Mo. EURIBOR 27.70 plus 1.40% plus 1.55% C-R A (sf) 20.60 3-Mo. EURIBOR 3-Mo. EURIBOR 21.80 plus 1.95% plus 2.10% D-R BBB (sf) 17.50 3-Mo. EURIBOR 3-Mo EURIBOR 16.80 plus 2.80% plus 3.30% E Sec. BB (sf) 22.50 N/A 3-Mo. EURIBOR 10.40 plus 5.45% F Sec. B- (sf) 9.80 N/A 3-Mo. EURIBOR 7.50 plus 6.65% * The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. (Sec.) - These classes of notes were not subject to refinancing. EURIBOR--Euro Interbank Offered Rate. N/A--Not applicable. CONTEGO CLO VII: Fitch Affirms B- Rating on Class F Notes --------------------------------------------------------- Fitch Ratings has affirmed Contego CLO VII DAC and revised the Outlooks on the class C to F notes to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- Contego CLO VII DAC A XS2053876764 LT AAAsf Affirmed AAAsf B-1 XS2053877572 LT AAsf Affirmed AAsf B-2 XS2053878034 LT AAsf Affirmed AAsf C XS2053878620 LT Asf Affirmed Asf D XS2053879354 LT BBB-sf Affirmed BBB-sf E XS2053879941 LT BB-sf Affirmed BB-sf F XS2053880444 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Contego CLO VII DAC.is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine and second-lien loans. The portfolio is managed by Five Arrows Managers LLP. The reinvestment period ends in January 2024. KEY RATING DRIVERS Resilient to Coronavirus Stress The affirmation reflects the broadly stable portfolio credit quality since July 2020. The Stable Outlook on all investment-grade notes and the revision of the Outlooks on the class C to F notes to Stable from Negative reflect the default rate cushion in the sensitivity analysis ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. Portfolio Performance Stabilises As of the latest investor report dated 13 January 2021, the transaction was 0.01% below par and all portfolio profile tests, coverage tests and collateral quality tests were passing, except for the Fitch weighted average rating factor (WARF). As of the same report, the transaction had no defaulted assets. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 5.8 % (excluding unrated assets). Assets with an FDR on Negative Outlook made up 13.34% of the portfolio balance. 'B'/'B-' Portfolio Credit Quality Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch WARF of the current portfolio is 34.61 (assuming unrated assets are 'CCC') - above the maximum covenant of 34.00, while the trustee-reported Fitch WARF was 34.59. High Recovery Expectations Senior secured obligations make up 96.9% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligors represent 14.9% of the portfolio balance with no obligor accounting for more than 1.9%. Around 28.5% of the portfolio consists of semi-annual obligations but a frequency switch has not occurred due to the transaction's high interest coverage ratios. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. In addition, Fitch tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario but included all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The transaction features a reinvestment period and the portfolio is actively managed. At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio's credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. -- After the end of the reinvestment period, upgrades may occur in case of better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those vulnerable sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The downside sensitivity incorporates a single-notch downgrade to all FDRs for assets that are on Negative Outlook. In this case the model-implied ratings for the class D and F notes would be one notch below their current ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Contego CLO VII DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CVC CORDATUS XV: Fitch Affirms B- Rating on Class F Notes --------------------------------------------------------- Fitch Ratings has revised the Outlook on CVC Cordatus Loan Fund XV's class D to F notes to Stable from Negative. All ratings have been affirmed. DEBT RATING PRIOR ---- ------ ----- CVC Cordatus Loan Fund XV DAC A XS2025843652 LT AAAsf Affirmed AAAsf B-1 XS2025844205 LT AAsf Affirmed AAsf B-2 XS2025845277 LT AAsf Affirmed AAsf C XS2025845863 LT A+sf Affirmed A+sf D XS2025846598 LT BBB-sf Affirmed BBB-sf E XS2025846671 LT BB-sf Affirmed BB-sf F XS2025847216 LT B-sf Affirmed B-sf X XS2025843496 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY CVC Cordatus Loan Fund XV is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine and second-lien loans. The portfolio is managed by CVC Credit Partners European CLO Management LLP. The reinvestment period ends in February 2024. KEY RATING DRIVERS Resilient to Coronavirus Stress The revision of the Outlooks on the junior notes to Stable from Negative and the Stable Outlook on other notes reflect the default-rate cushion in the sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume that half of the corporate exposure on Negative Outlook is downgraded by one notch, instead of 100%. The affirmation reflects the portfolio's broadly stable credit quality since July 2020. Portfolio Performance Stabilises As of the latest investor report dated 31 December 2020, the transaction was 0.86% below par and all portfolio profile tests, coverage tests and Fitch collateral quality tests were passing. As of the same report, the transaction had no defaulted assets. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 4.5% (excluding unrated assets). Assets with an FDR on Negative Outlook made up 16.67% of the portfolio balance. 'B'/'B-' Portfolio Credit Quality Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch weighted average rating factor (WARF) of the current portfolio is 33.42 (assuming unrated assets are 'CCC') - below the maximum covenant of 34, while the trustee-reported Fitch WARF was 33.57. High Recovery Expectations Senior secured obligations represent 99.3% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligors represent 18% of the portfolio balance with no obligor accounting for more than 2.3%. Around 33.25% of the portfolio consists of semi-annual obligations but a frequency switch has not occurred due to the transaction's high interest-coverage ratios. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, as well as to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio based on both the stable and rising interest-rate scenarios and the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. In addition, Fitch tested the current portfolio with a coronavirus sensitivity analysis to estimate the resilience of the notes' ratings. The coronavirus sensitivity analysis was only based on the stable interest-rate scenario but included all default timing scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- The transaction features a reinvestment period and the portfolio is actively managed. At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely, as the portfolio's credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. -- After the end of the reinvestment period, upgrades may occur in case of better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those vulnerable sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its leveraged finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The downside sensitivity incorporates a single-notch downgrade to all FDRs for assets that are on Negative Outlook. In this case the model-implied ratings for the class E and F notes are one notch lower than their current ratings. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. LAURELIN DAC 2016-1: Fitch Affirms B- Rating on Class F-R Notes --------------------------------------------------------------- Fitch Ratings has affirmed Laurelin 2016-1 DAC and revised the Outlooks on the class D, E and F notes to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- Laurelin 2016-1 DAC A-R XS1848756679 LT AAAsf Affirmed AAAsf B-1-R XS1848758295 LT AAsf Affirmed AAsf B-2-R XS1848757644 LT AAsf Affirmed AAsf C-R XS1848759426 LT Asf Affirmed Asf D-R XS1848760861 LT BBB-sf Affirmed BBB-sf E-R XS1848761240 LT BB-sf Affirmed BB-sf F-R XS1848761596 LT B-sf Affirmed B-sf TRANSACTION SUMMARY The transaction is a cash flow CLO, mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by GoldenTree Asset Management LP. KEY RATING DRIVERS Performance Stable Since Last Review Laurelin 2016-1 was below par by 1.5% as of the latest investor report dated 5 January 2021. All portfolio profile tests, collateral quality tests and coverage tests were passing except for Fitch's and another agency's 'CCC' tests (11.88% versus a limit of 7.5%). The manager classifies one asset for EUR3.5 million as current pay obligation. Resilient to Coronavirus Stress The affirmations reflect a broadly stable portfolio credit quality since July 2020. The Stable Outlooks on all investment-grade notes and the revision of the Outlooks on the sub-investment-grade notes to Stable from Negative reflect the default rate cushion in the sensitivity analysis ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of all of it. 'B'/'B-' Portfolio Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch weighted average rating factor (WARF) calculated by Fitch (assuming unrated assets are 'CCC') and by the trustee for Laurelin 2016-1's current portfolio was 35.29 and 36.18, respectively, below the maximum covenant of 37.50. The Fitch WARF would increase by 1.6 after applying the coronavirus stress. High Recovery Expectations Senior secured obligations comprise at least 98% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the current portfolio under Fitch's calculation is 64.28%. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is no more than 17.8% and no obligor represents more than 2.3% of the portfolio balance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customized to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate due to natural credit migration and reinvestment. -- After the end of the reinvestment period, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than initially assumed due to unexpected high level of default and portfolio deterioration. As the disruptions to supply and demand due to the Covid-19 disruption become apparent for other sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of Fitch's Leveraged Finance team. Coronavirus Potential Severe Downside Stress Scenario Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook. This scenario does not result in downgrades across the capital structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Laurelin 2016-1 DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. MAN GLG II: Fitch Affirms B- Rating on Class F Notes ---------------------------------------------------- Fitch Ratings has affirmed the ratings of all tranches of Man GLG Euro CLO II Designated Activity Company and revised the Outlooks on the class B, C, D, E and F notes to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- Man GLG Euro CLO II DAC A-1-R XS2034711064 LT AAAsf Affirmed AAAsf A-2 XS1516363576 LT AAAsf Affirmed AAAsf B XS1516362685 LT AAsf Affirmed AAsf C-R XS2034711734 LT Asf Affirmed Asf D XS1516363733 LT BBB-sf Affirmed BBB-sf E XS1516363063 LT BB-sf Affirmed BB-sf F XS1516363147 LT B-sf Affirmed B-sf TRANSACTION SUMMARY The transaction is cash flow CLOs, mostly comprising senior secured obligations. The deal came out of the reinvestment period on 15 January 2021 and is actively managed by GLG Partners LP. KEY RATING DRIVERS Asset Performance Stable Asset performance has been stable since the last review. As per the trustee report dated 5 January 2021, the deal is below target par by 2.40% on account of defaulted assets in the portfolio. All coverage tests, portfolio profile tests and Fitch-related collateral quality tests are passing except for the Fitch weighted average rating factor test (WARF) and the Fitch 'CCC' limit tests, which are failing. Exposure to assets with a Fitch-derived rating of 'CCC+' and below, as calculated by Fitch as of 6 February 2021, is 7.45% (or 8.57% including the unrated names, which Fitch treats as 'CCC' per its methodology, while the manager can classify as 'B-' for up to 10% of the portfolio), compared with the 7.5% limit. After the reinvestment period, the manager could only reinvest if all coverage tests, another credit rating agency's WARF test and the Fitch 'CCC' limit test are satisfied. These tests could limit any further trading activities and as the portfolio starts to pay down the transaction could start to deleverage. Resilience to Coronavirus Stress The affirmations reflect the broadly stable portfolio credit quality since the last review. The Stable Outlook on the Class A notes, and the revision of the Outlook on all other tranches to Stable from Negative reflect the default rate cushion in the sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. For more details on Fitch’s pandemic-related stresses see "Fitch Ratings Expects to Revise Significant Share of CLO Outlooks to Stable", published 22 January 2021. 'B'/'B-'Portfolio: Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. As at 6 February 2021, the Fitch-calculated WARF of the portfolio is 35.26. High Recovery Expectations: Senior secured obligations make up 99.13% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the current portfolio as per the latest trustee report is 65%. Portfolio Well Diversified The portfolio is well diversified across obligors, countries and industries. The top-10 obligor concentration is no more than 15.36%, and no obligor represents more than 1.73% of the portfolio balance in either CLO. The top Fitch industry and the top 3 Fitch industry concentration are the defined covenants of 17.5% and 40%, respectively. Deviation from Model-Implied Ratings (MIR) Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transactions, and to assess their effectiveness - including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transactions were modelled using the current portfolios and the current portfolios with a coronavirus sensitivity analysis. Fitch's coronavirus sensitivity analysis was based on a stable interest-rate scenario only but included the front-, mid- and back-loaded default timing scenarios, as outlined in Fitch's criteria. The MIR for class B, C and E note is one notch above and for Class D note two notches above the current rating level. However, Fitch has deviated from the MIRs given the deal has not started to amortise yet and portfolio performance after the reinvestment period needs to be monitored before any upgrades. Moreover, the breakeven default cushion at the MIR is marginal, and so could erode if there is any negative credit migration. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade may occur in case of continued better-than-initially-expected portfolio credit quality and deal performance, leading to higher credit enhancement for the notes and excess spread available to cover for losses on the remaining portfolio. Upgrades would be more likely for the investment-grade tranches if the transaction deleverages and the portfolio credit quality remains stable. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its leveraged finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook. This scenario does not result in downgrade across the capital structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Man GLG Euro CLO II DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. MAN GLG V: Fitch Affirms B- Rating on Class F Notes --------------------------------------------------- Fitch Ratings has revised the Outlooks on the class D, E and F notes of Man GLG Euro CLO V to Stable from Negative and affirmed the rest of the notes. DEBT RATING PRIOR ---- ------ ----- Man GLG Euro CLO V A-1 XS1881730045 LT AAAsf Affirmed AAAsf A-2 XS1881730474 LT AAAsf Affirmed AAAsf B-1 XS1881730805 LT AAsf Affirmed AAsf B-2 XS1881731100 LT AAsf Affirmed AAsf B-3 XS1885674447 LT AAsf Affirmed AAsf C-1 XS1881731449 LT Asf Affirmed Asf C-2 XS1885674876 LT Asf Affirmed Asf C-3 XS1885675170 LT Asf Affirmed Asf D-1 XS1881731951 LT BBBsf Affirmed BBBsf D-2 XS1885675410 LT BBBsf Affirmed BBBsf E XS1881732256 LT BB-sf Affirmed BB-sf F XS1881732330 LT B-sf Affirmed B-sf TRANSACTION SUMMARY The transaction is a cash-flow CLO, mostly comprising senior secured obligations. The transaction is within its reinvestment period and is actively managed by GLG Partners LP. KEY RATING DRIVERS Performance Stable Since the Last Review Man GLG Euro CLO V was below par by 0.85% as of the latest investor report dated 8 January 2021. All portfolio profile, collateral quality and coverage tests were passing except for another agency's weighted average rating factor (WARF) test. Exposure to assets with a Fitch-derived rating of 'CCC+' and below was 5.1% (excluding unrated names, which Fitch treats as 'CCC' but for which the manager can classify as 'B-' up to 10% of the portfolio), below the 7.5% limit. The manager classifies two assets for EUR5.3 million as defaulted. Resilient to Coronavirus Stress The affirmations reflect a broadly stable portfolio credit quality since August 2020. The Stable Outlooks on all investment-grade notes and the revision of the Outlooks on the sub-investment-grade notes to Stable from Negative reflect the default rate cushion in the sensitivity analysis ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of all of it. 'B'/'B-' Portfolio Fitch assesses the average credit quality of the obligors in the 'B'/'B-' category. The Fitch WARF calculated by Fitch (assuming unrated assets are 'CCC') and by the trustee for Man GLG V's portfolio was 35.19 and 34.86, respectively, compared with a maximum covenant of 35. The Fitch WARF would increase by 1.6 after applying the coronavirus stress. High Recovery Expectations Senior secured obligations comprise at least 99.5% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the current portfolio under Fitch's calculation is 63.32%. Diversified Portfolio The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is no more than 14.2%, and no obligor represents more than 2% of the portfolio balance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customized to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. -- After the end of the reinvestment period, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than initially assumed due to unexpected high level of default and portfolio deterioration. As the disruptions to supply and demand due to the Covid-19 disruption become apparent for other sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of Fitch's Leveraged Finance team. -- Coronavirus Potential Severe Downside Stress Scenario: Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook. This scenario does not result in downgrades across the capital structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Man GLG Euro CLO V Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. Most of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. OAK HILL VIII: Moody's Gives '(P)Ba3' Rating to Class E Notes -------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following provisional ratings to Notes to be issued by Oak Hill European Credit Partners VIII DAC (the "Issuer"): EUR170,400,000 Class A Senior Secured Floating Rate Notes due 2035, Assigned (P)Aaa (sf) EUR15,100,000 Class B-1 Senior Secured Floating Rate Notes due 2035, Assigned (P)Aa2 (sf) EUR12,500,000 Class B-2 Senior Secured Fixed Rate Notes due 2035, Assigned (P)Aa2 (sf) EUR18,700,000 Class C Senior Secured Deferrable Floating Rate Notes due 2035, Assigned (P)A2 (sf) EUR19,200,000 Class D Senior Secured Deferrable Floating Rate Notes due 2035, Assigned (P)Baa3 (sf) EUR14,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2035, Assigned (P)Ba3 (sf) EUR8,400,000 Class F Senior Secured Deferrable Floating Rate Notes due 2035, Assigned (P)B3 (sf) RATINGS RATIONALE The rationale for the ratings are based on a consideration of the risks associated with the CLO's portfolio and structure as described in our methodology. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured obligations and up to 10% of the portfolio may consist of senior unsecured obligations, second-lien loans, senior unsecured loans, mezzanine obligations and high yield bonds. The portfolio is expected to be approximately 85% ramped as of the closing date and to comprise of predominantly corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the six month ramp-up period in compliance with the portfolio guidelines. Oak Hill Advisors (Europe), LLP will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's four-year reinvestment period. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or credit improved obligations. In addition to the seven Classes of Notes rated by Moody's, the Issuer will issue EUR 26,460,000 Subordinated Notes due 2035 which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the Notes in order of seniority. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of corporate assets from the current weak European economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2020. Factors that would lead to an upgrade or downgrade of the ratings: The rated Notes' performance is subject to uncertainty. The Notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the Notes' performance. Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2020. Moody's used the following base-case modeling assumptions: Par Amount: EUR 277,000,000 Diversity Score: 45 (*) Weighted Average Rating Factor (WARF): 3025 Weighted Average Spread (WAS): 3.70% Weighted Average Coupon (WAC): 3.50% Weighted Average Recovery Rate (WARR): 44.5% Weighted Average Life (WAL): 8.5 years (*) The covenanted base case Diversity Score is 46, however we have assumed a diversity score of 45 as the transaction documentation allows for the diversity score to be rounded up to the nearest whole number whereas usual convention is to round down to the nearest whole number. Moody's has addressed the potential exposure to obligors domiciled in countries with local currency ceiling (LCC) of A1 or below. As per the portfolio constraints and eligibility criteria, exposures to countries with LCC of A1 to A3 cannot exceed 10% and obligors cannot be domiciled in countries with LCC below A3. OZLME IV: Fitch Affirms B- Rating on Class F Debt ------------------------------------------------- Fitch Ratings has affirmed OZLME IV DAC and revised the Outlook on the class E and F to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- OZLME IV DAC A-1 XS1829320784 LT AAAsf Affirmed AAAsf A-2 XS1829321592 LT AAAsf Affirmed AAAsf B XS1829321089 LT AAsf Affirmed AAsf C-1 XS1829323291 LT Asf Affirmed Asf C-2 XS1834897040 LT Asf Affirmed Asf D XS1829322137 LT BBB-sf Affirmed BBB-sf E XS1829322301 LT BBsf Affirmed BBsf F XS1829323705 LT B-sf Affirmed B-sf TRANSACTION SUMMARY OZLME IV DAC is a cash flow CLO mostly comprising senior secured obligations. The transaction is within its reinvestment period and is actively managed by its collateral manager. KEY RATING DRIVERS Stable Asset Performance: The transaction is slightly below par by 8bp as of the latest investor report available. As shown in the report, it fails both the Fitch Weighted Average Rating Factor (WARF) test and the Fitch CCC obligation test. It passes all other portfolio profile tests, coverage tests and collateral quality tests. At 6 February 2021, exposure to assets with a Fitch-derived rating of 'CCC+' and below was 8.14%, above the limit of 7.5%. Resilience to Coronavirus Stress: The affirmation reflects stable portfolio credit quality. The Stable Outlook on all investment grade notes, and the revision of the Outlook on the sub-investment grade notes to Stable from Negative, reflect the default rate cushion in the sensitivity analysis run in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. At 6 February 2021, the Fitch-calculated WARF of the portfolio was 35.45, slightly lower than the trustee-reported WARF of 14 January 2021 of 35.5 owing to rating migration. High Recovery Expectations: Nearly all (96%) of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the current portfolio was 65.3% as shown in the report. Portfolio Well Diversified: The portfolio is well diversified across obligors, countries and industries. The top 10 obligors' concentration is 13.21% and no obligor represents more than 1.5% of the portfolio balance. Fitch calculates the largest industry is business services at 12.54% of the portfolio balance, against limits of 17.5%. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) customised to the limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely. This is because the portfolio credit quality may still deteriorate, not only by natural credit migration, but also because of reinvestment. -- After the end of the reinvestment period, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to an unexpected high level of default and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent for other vulnerable sectors, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Potential Severe Downside Stress Scenario Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook. This scenario shows resilience of the current ratings of all the classes. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY OZLME IV DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. SORRENTO PARK: Fitch Affirms B- Rating on Class E Notes ------------------------------------------------------- Fitch Ratings has upgraded Sorrento Park CLO Designated Activity Company's class B-R and C-R notes, and affirmed the rest of the notes. Fitch has revised the Outlook to Stable from Negative on the class E notes. DEBT RATING PRIOR ---- ------ ----- Sorrento Park CLO DAC A-1A-R XS1602540848 LT AAAsf Affirmed AAAsf A-1B-R XS1602541143 LT AAAsf Affirmed AAAsf A-2A-R XS1602541572 LT AAAsf Affirmed AAAsf A-2B-R XS1602542117 LT AAAsf Affirmed AAAsf B-R XS1602544329 LT AA+sf Upgrade AAsf C-R XS1602543354 LT A+sf Upgrade Asf D XS1112959728 LT BB+sf Affirmed BB+sf E XS1112970022 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Sorrento Park CLO is a cash-flow collateralised loan obligation (CLO) backed by a portfolio of mainly European leveraged loans and bonds and has been out of its reinvestment period since November 2018. The portfolio is managed by Blackstone Ireland Limited. KEY RATING DRIVERS Amortisation Supports Upgrades The upgrades on the class B-R and C-R notes reflect the significant deleveraging of the transaction over the past 12 months. The class A-1-R notes have paid down EUR75 million over the past 12 months, increasing credit enhancement on the senior notes to 68.3% from 54.2%. The upgrade also reflects a constraint on reinvestments from the sale proceeds of credit risk obligations, credit-improved obligations and from unscheduled principal proceeds as the current weighted average life (WAL) test has been breached since February 2019. As of 20 January 2021, the trustee reported a WAL of 3.49 years against the covenant of 3.07 years. In addition, the following test breaches constrain reinvesting in new assets: Fitch WARF, Moody's WARF, Fitch CCC and Moody's Caa. As such, Fitch's analysis was prepared from the current portfolio. Asset Performance Resilient to the Pandemic Sorrento Park has not been reinvesting since May 2019 as it does not satisfy several post-reinvestment-period criteria. It is 3.1% below par as of the latest investor report available. All coverage tests are passing. Exposure to assets with a Fitch-derived rating of 'CCC+' and below is 7.9% (or 10.2% including the unrated names, which Fitch treats as 'CCC' per its methodology, while the manager can classify as 'B-' for up to 10% of the portfolio), compared to the 7.5% limit. No asset is reported as defaulted. One asset representing EUR3.2 million is re-classified as current pay obligation. Resilient to Coronavirus Stress The affirmations and upgrades reflect the deleveraging of the transaction since last time the CLO was reviewed. The Stable Outlook or Positive Outlook at the assigned rating for all tranches reflects the default rate cushion (except for tranche E) in the sensitivity analysis ran in light of the coronavirus pandemic. The Negative Outlook on the class E notes has been revised to Stable despite the fact that it is not passing the coronavirus sensitivity analysis. A downgrade on this tranche is unlikely considering the significant credit enhancement available of 8.8%. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. Deviation from Model-Implied Rating The class E rating has been affirmed at 'B-sf', which is a deviation from the model-implied rating of 'CCC'. The deviation is motivated by the limited margin of safety class E has as it benefits from a significant credit enhancement of 8.8%. The class B-R rating has been upgraded to 'AA+sf', which is one notch lower than the model-implied rating of 'AAA'. The deviation is motivated by the low default rate cushion under the coronavirus scenario. However the Outlook in this tranche is Positive to indicate a heightened likelihood of upgrade since it is passing a higher rating. 'B'/'B-' Portfolio Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category in both portfolios. The Fitch weighted average rating factor (WARF) calculated by Fitch of the current portfolio as of 6 February 2021 is 36.02, while it was reported as 36.92 against a maximum of 34.5 in the 20 January 2021 monthly report. The Fitch WARF would increase to 37.70 after applying the coronavirus scenario. High Recovery Expectations All of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the current portfolio is reported by the trustee at 60.6% as of 20 January 2021 compared to a minimum of 62.8%. Portfolio More Concentrated The portfolio has become more concentrated as it continues to amortise (by EUR81 million over the past 12 months) but remains well diversified across obligors, countries and industries despite the amortisation. The top 10 obligor concentration is 21.6% and no obligor represents more than 2.75% of the portfolio balance. RATING SENSITIVITIES This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modelling process uses the modification of these variables to reflect asset performance in up and down environments. The results below should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A reduction of the default rate (RDR) at all rating levels by 25% of the mean RDR and an increase in the recovery rate (RRR) by 25% at all rating levels would result in an upgrade of one to five notches across the structure. -- Except for the class A-1 and A-2, notes, which are already at the highest 'AAAsf' rating, upgrades may occur should there be better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses on the remaining portfolio. The class B and C notes could be upgraded if the notes continue to amortise, leading to higher credit enhancement across the structure and the portfolio quality remains stable. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- An increase of the RDR at all rating levels by 25% of the mean RDR and a decrease of the RRR by 25% at all rating levels will result in downgrades of up to five notches, depending on the notes. -- While not Fitch's base case scenario, downgrades may occur if build-up of the notes' credit enhancement following amortisation does not compensate for a higher loss expectation than initially assumed due to unexpected high level of default and portfolio deterioration. As the disruptions to supply and demand due to the Covid-19 disruption become apparent for other sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of Fitch's Leveraged Finance team. Coronavirus Potential Severe Downside Stress Scenario: Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook. This scenario does not result in downgrades across the capital structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. TIKEHAU CLO DAC: Moody's Affirms B2 Rating on Class F-R Notes ------------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by Tikehau CLO DAC: EUR39,000,000 Class B-R Senior Secured Floating Rate Notes due 2028, Upgraded to Aaa (sf); previously on Dec 8, 2020 Aa1 (sf) Placed Under Review for Possible Upgrade EUR28,000,000 Class C-R Senior Secured Deferrable Floating Rate Notes due 2028, Upgraded to Aa3 (sf); previously on Dec 8, 2020 A2 (sf) Placed Under Review for Possible Upgrade EUR16,000,000 Class D-R Senior Secured Deferrable Floating Rate Notes due 2028, Upgraded to Baa1 (sf); previously on Jul 8, 2019 Affirmed Baa2 (sf) Moody's has also affirmed the ratings on the following notes: EUR161,000,000 (Current Outstanding Amount EUR 111,789,939) Class A-1R Senior Secured Floating Rate Notes due 2028, Affirmed Aaa (sf); previously on Jul 8, 2019 Affirmed Aaa (sf) EUR40,000,000 (Current Outstanding Amount EUR 27,773,898) Class A-2 Senior Secured Fixed/Floating Rate Notes due 2028, Affirmed Aaa (sf); previously on Jul 8, 2019 Affirmed Aaa (sf) EUR21,200,000 Class E-R Senior Secured Deferrable Floating Rate Notes due 2028, Affirmed Ba2 (sf); previously on Jul 8, 2019 Affirmed Ba2 (sf) EUR7,800,000 Class F-R Senior Secured Deferrable Floating Rate Notes due 2028, Affirmed B2 (sf); previously on Jul 8, 2019 Affirmed B2 (sf) Tikehau CLO DAC, issued in July 2015, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European and US loans. The portfolio is managed by Tikehau Capital Europe Limited. The transaction's reinvestment period has ended in August 2019. The action concludes the rating review on the Class B-R and C-R notes initiated on December 8, 2020, "Moody's upgrades 23 securities from 11 European CLOs and places ratings of 117 securities from 44 European CLOs on review for possible upgrade.", http://www.moodys.com/viewresearchdoc.aspx?docid=PR_437186. RATINGS RATIONALE The rating upgrades on the Class B-R, C-R and D-R notes are primarily due to the update of Moody's methodology used in rating CLOs, which resulted in a change in overall assessment of obligor default risk and calculation of weighted average rating factor (WARF). Based on Moody's calculation, the WARF is currently 3041 after applying the revised assumptions as compared to the trustee reported WARF of 3365 as of January 2021 [1]. Today's action also reflects the deleveraging of the Class A-1R and A-2 notes following amortisation of the underlying portfolio since the payment date in August 2020 [2]. The Class A-1R and A-2 notes have paid down by approximately EUR 57.7 million (28.7%) in the last 12 months and EUR 61.4 million (30.6%) since closing. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure. According to the trustee report dated January 2021 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 144.9%, 127.8%, 119.7%, 110.5% and 107.4% compared to January 2020 [3] levels of 140.2%, 125.4%, 118.2%, 109.9% and 107.1%, respectively. Moody's notes that the principal payments scheduled for the February 2021 payment date are not reflected in the OC ratios reported in the January 2021 trustee report [1]. The rating affirmations on the Class A-1R, A-2, E-R and F-R notes reflect the expected losses of the notes continuing to remain consistent with their current ratings after taking into account the CLO's latest portfolio, its relevant structural features and its actual OC levels as well as applying Moody's revised CLO assumptions. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's used the following assumptions: Performing par and principal proceeds balance: EUR 272.5 million Defaulted Securities: Nil Diversity Score: 42 Weighted Average Rating Factor (WARF): 3041 Weighted Average Life (WAL): 4.01 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.60% Weighted Average Coupon (WAC): 5.33% Weighted Average Recovery Rate (WARR): 44.74% Par haircut in OC tests and interest diversion test: Nil The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Moody's notes that the credit quality of the CLO portfolio has deteriorated since early 2020 as a result of economic shocks stemming from the coronavirus outbreak. Corporate credit risk remains elevated, and Moody's projects that default rates will continue to rise through the first quarter of 2021. Although recovery is underway in the US and Europe, it is a fragile one beset by unevenness and uncertainty. As a result, Moody's analyses continue to take into account a forward-looking assessment of other credit impacts attributed to the different trajectories that the US and European economic recoveries may follow as a function of vaccine development and availability, effective pandemic management, and supportive government policy responses. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2020. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2020. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, in light of uncertainty about credit conditions in the general economy. In particular, the length and severity of the economic and credit shock precipitated by the global coronavirus pandemic will have a significant impact on the performance of the securities. CLO notes' performance may also be impacted either positively or negatively by: (1) the manager's investment strategy and behaviour; and (2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to the following: Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions, and CLO's reinvestment criteria after the end of the reinvestment period, both of which can have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. TIKEHAU CLO: Fitch Affirms B Rating to Class F-R Notes ------------------------------------------------------ Fitch Ratings has revised the Outlook on Tikehau CLO DAC's class D-R, E-R and F-R notes to Stable from Negative, and on class B-R notes to Positive from Stable. All ratings have been affirmed. DEBT RATING PRIOR ---- ------ ----- Tikehau CLO DAC Class A-1R XS1719253558 LT AAAsf Affirmed AAAsf Class A-2 XS1247498329 LT AAAsf Affirmed AAAsf Class B-R XS1719254101 LT AA+sf Affirmed AA+sf Class C-R XS1719254879 LT A+sf Affirmed A+sf Class D-R XS1719255330 LT BBB+sf Affirmed BBB+sf Class E-R XS1719255926 LT BBsf Affirmed BBsf Class F-R XS1719256148 LT Bsf Affirmed Bsf TRANSACTION SUMMARY Tikehau CLO DAC is a cash flow CLO comprising senior secured obligations. The transaction is out of its reinvestment period and is managed by Tikehau Capital Europe Limited. KEY RATING DRIVERS Deleveraging of Capital Structure: The transaction's reinvestment period finished on 4 August 2019. EUR30.4 million of the class A-1R and A-2 notes have been repaid, leaving a positive cushion for the notes under the Fitch stressed portfolio's cash flow model run, based on the transaction's covenants as well as the coronavirus baseline scenario. The Outlook on the class B-R notes has been revised to Positive from Stable due to the likely positive credit effect of future deleveraging. Asset Performance Stable, Below Par: The transaction was below par by 1.76% as of the investor report on 25 January 2021. All portfolio profile tests, collateral quality tests and coverage tests were passing, except the Fitch weighted average rating factor (WARF) test. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 7.5%. Stable Outlooks Based on Coronavirus Stress: The revision of the Outlooks on the class D-R, E-R and F-R notes to Stable is a result of a sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook (29% of the portfolio) was downgraded by one notch, instead of 100%. All notes have a positive cushion under this cash flow model run. For more details on Fitch’s pandemic-related stresses see "Fitch Ratings Expects to Revise Significant Share of CLO Outlooks to Stable." 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors in the 'B' /'B-' category for the transaction. The Fitch WARF calculated by the agency at 35.14 (assuming unrated assets are CCC) and calculated by the trustee at 35.67 for the current portfolio are above the maximum covenant of 34.5. The Fitch WARF increases by 2.95 after applying the coronavirus stress. High Recovery Expectations: The portfolio comprises 99.09% senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Diversified Portfolio: The portfolio is diversified across obligors, countries and industries. The top 10 obligor concentration is 20.79%, and no obligor represents more than 2.47% of the portfolio balance. Deviation from Model-Implied Ratings: Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, and to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. The transaction was modelled using the current portfolio and one with a coronavirus sensitivity analysis. Fitch's coronavirus sensitivity analysis was based on a stable interest-rate scenario only but included the front-, mid- and back-loaded default timing scenarios as outlined in Fitch's criteria. The model-implied rating for the class B-R notes is one notch above the current rating. However, Fitch has deviated from the model-implied rating as these notes have not yet begun to significantly de-leverage. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A reduction of the default rate (RDR) by 25% at all rating levels and an increase in the recovery rate (RRR) by 25% at all rating levels would result in an upgrade of up to five notches depending on the notes. -- Except for the class A notes, which are already at the highest 'AAAsf' rating, upgrades may occur in case of better-than expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. If the asset prepayment is faster than expected and outweighs the negative pressure of the portfolio migration, this could increase credit enhancement and put upgrade pressure on the non-'AAAsf' rated notes. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- An increase of the RDR by 25% at all rating levels and a decrease of the RRR by 25% at all rating levels will result in downgrades of no more than five notches depending on the notes. -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As disruptions to supply and demand due to Covid-19 become apparent for other vulnerable sectors, loan ratings in those sectors would also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its leveraged finance team. Coronavirus Severe Downside Stress Scenario Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The severe downside scenario incorporates a single-notch downgrade to all the corporate exposure on Negative Outlook. All notes show resilience to this scenario. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognised Statistical Rating Organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. TORO EURO 4: Fitch Affirms B- Rating on Class F-R Notes ------------------------------------------------------- Fitch Ratings has affirmed Toro European CLO 4 DAC and revised the Outlook on the class C-R, D-R, E-R and F-R notes to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- Toro European CLO 4 DAC A-R XS1639912762 LT AAAsf Affirmed AAAsf B-1-R 89109MAH7 LT AAsf Affirmed AAsf B-2-R 89109MAM6 LT AAsf Affirmed AAsf B-3-R 89109MAP9 LT AAsf Affirmed AAsf C-R 89109MAS3 LT Asf Affirmed Asf D-R 89109MAV6 LT BBBsf Affirmed BBBsf E-R XS1639910808 LT BB-sf Affirmed BB-sf F-R 89109MAZ7 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Toro European CLO 4 DAC is a cash flow CLO mostly comprising senior secured obligations. The transaction is still within its reinvestment period and is actively managed by Chenavari Capital Partners LLP. KEY RATING DRIVERS Stable Asset Performance: The transaction was below par by 120bp as of the investor report on 5 January 2020. All portfolio profile tests, collateral quality tests and coverage tests were passing, except the Fitch weighted average rating factor (WARF) test and 'CCC' obligations limit. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below was 9.75% (excluding non-rated assets). Stable Outlooks Based on Coronavirus Stress: The revision of the Outlooks on the class C-R, D-R, E-R and F-R notes to Stable from Negative is a result of a sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch has recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook (29.65% of the portfolio) was downgraded by one notch, instead of 100%. All notes show resilience under this scenario, except the class E-R notes, which display a marginal shortfall. For more details on Fitch’s pandemic -related stresses see "Fitch Ratings Expects to Revise Significant Share of CLO Outlooks to Stable." 'B' /'B-' Portfolio: Fitch assesses the average credit quality of the obligors in the 'B' /'B-' category for the transaction. The Fitch WARF calculated by the agency at 36.10 (assuming unrated assets are 'CCC') and calculated by the trustee at 36.04 for the current portfolio are above the maximum covenant of 34.00. The Fitch WARF increases by 2.97 after applying the coronavirus stress. High Recovery Expectations: Senior secured obligations comprise 97.78% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is 13.26%, and no obligor represents more than 1.63% of the portfolio balance. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing, an upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. -- Upgrades may occur after the end of the reinvestment period on better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Scenario Impact Fitch also considers a sensitivity analysis that contemplates a more severe and prolonged economic stress. The downside sensitivity incorporates a single-notch downgrade to all FDRs of assets with corporate issuers on Negative Outlook regardless of sector. All notes show resilience to this scenario, except the class E-R and F-R notes, which display a one-notch downgrade. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Toro European CLO 4 DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ========= I T A L Y ========= 2WORLDS SRL: DBRS Lowers Class B Notes Rating to CCC ---------------------------------------------------- DBRS Ratings GmbH downgraded its ratings of the Class A and Class B notes issued by 2Worlds S.r.l. from BBB (low) (sf) and B (low) (sf) to BB (sf) and CCC (sf), respectively, and assigned Negative trends to the ratings. These downgrades resolved the Under Review with Negative Implications status of the notes, which was assigned on 8 May 2020. The transaction represents the issuance of Class A, Class B, and Class J notes (collectively, the Notes). At issuance, the Notes were backed by a EUR 1.0 billion portfolio by gross book value (GBV) consisting of secured and unsecured nonperforming loans (NPLs) originated by Banco di Desio e della Brianza S.p.A. and Banca Popolare di Spoleto S.p.A. The majority of loans in the portfolio defaulted between 2014 and 2017 and are in various stages of resolution. The receivables are serviced by Cerved Credit Management S.p.A. (the special servicer), while Cerved Master Services S.p.A. operates as the master servicer and Banca Finanziaria Internazionale S.p.A. was appointed as the backup servicer for the transaction. As of December 2020, the portfolio's GBV totalled EUR 831.2 million. RATING RATIONALE The rating downgrades follow a review of the transaction and are based on the following analytical considerations: -- Transaction performance: assessment of portfolio recoveries as of 31 December 2020, focusing on: (1) a comparison between actual collections and the special servicer's initial business plan forecasts; (2) the collection performance observed over the past 18 months, including the period following the outbreak of the Coronavirus Disease (COVID-19); and (3) a comparison between the current performance and DBRS Morningstar's expectations. -- The special servicer's updated business plan, received in April 2020, which has new projections starting from the first quarter of 2020, and its comparison with the initial collection expectations and actual performance as of December 2020. -- Portfolio characteristics: loan pool composition as of December 2020 and evolution of its core features since issuance. -- Transaction liquidating structure: the order of priority entails a fully sequential amortization of the notes (i.e., the Class B notes will begin to amortize following the full repayment of the Class A notes, and the Class J notes will amortize following the repayment of the Class B notes). -- Performance ratios and underperformance events: as per the January 2021 payment report, the cumulative net collection ratio is 86.0% and the NPV cumulative profitability ratio is 125.1%. The 85% subordination event trigger is set at a lower threshold compared with other Italian NPL transactions. -- Liquidity support: the transaction benefits from an amortizing cash reserve providing liquidity to the structure, and covering against potential interest shortfall on the Class A notes and senior costs. The cash reserve target amount is equal to 4.05% of the Class A and Class B notes' principal outstanding balance and it is fully funded as of the January 2021 payment date. TRANSACTION PERFORMANCE According to the January 2021 payment report, the principal amounts outstanding of the Class A, Class B, and Class J notes were EUR 189.2 million, EUR 30.2 million, and EUR 9.0 million, respectively. The balance of the Class A notes has amortized 34.4% since issuance. The performance of the transaction has been deteriorating since the second half of 2019. As reported in the most recent semiannual servicer report, the actual cumulative gross collections as of 31 December 2020 were EUR 142.1 million, whereas the initial business plan prepared by the servicer assumed gross recoveries amounting to EUR 166.7 million for the same period. Therefore, with a gross cumulative collection ratio of 85.2%, the transaction is underperforming by 14.8% compared with the servicer's initial expectations. At issuance, DBRS Morningstar estimated cumulative gross collections of EUR 40.0 million at the BBB (low) (sf) scenario and EUR 50.8 million at the B (low) (sf) scenario for the same period. In April 2020, DBRS Morningstar received a revised business plan prepared by the special servicer. In this updated business plan, the special servicer assumed lower recoveries compared with initial expectations. The total cumulative gross collections from the updated business plan account for EUR 412.3 million, which is 7.7% lower than the EUR 446.7 million expected in the initial business plan, and represents a further reduction compared with the revised business plan released in 2019 (which was 4.2% lower than the initial forecast). Without including actual collections, the special servicer's expected gross collections from January 2020 amounted to EUR 308.3 million. The updated DBRS Morningstar BB (sf) rating stress assumes a haircut of 15.1% to the special servicer's latest business plans, also considering actual collections since January 2020 that were lower than expected in the updated business plan as of January 2020.. Actual collections since January 2020 amounted to EUR 38.1 million, which is behind the EUR 54.9 million expected in the updated business plan for the same period. In DBRS Morningstar's CCC (sf) scenario, the updated servicer's forecast were only adjusted in terms of actual collections and timing stress. The final maturity date of the transaction is in January 2037. The Coronavirus Disease (COVID-19) and the resulting isolation measures have resulted in a sharp economic contraction, increases in unemployment rates, and reduced investment activities. DBRS Morningstar anticipates that collections in European nonperforming loan (NPL) securitizations will continue to be disrupted in the coming months and that the deteriorating macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collateral. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar incorporated its expectation of a moderate medium-term decline in property prices but gave partial credit to expected house price increases from 2023 onwards in non-investment-grade rating stress scenarios. Notes: All figures are in Euros unless otherwise noted. LEVITICUS SPV: DBRS Lowers Class A Notes Rating to BB ----------------------------------------------------- DBRS Ratings GmbH downgraded its rating on the Class A notes issued by Leviticus SPV S.r.l. (the Issuer) to BB (sf) from BBB (sf) and assigned a Negative trend. At the same time, DBRS Morningstar removed the Under Review with Negative Implications status from the Class A notes, which was assigned on May 8, 2020. The transaction represents the issuance of Class A, Class B, and Class J notes (collectively, the Notes). The rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal. DBRS Morningstar does not rate the Class B or Class J notes. At issuance, the Notes were backed by a EUR 7.4 billion portfolio by gross book value (GBV) consisting of unsecured and secured nonperforming loans originated by Banco BPM S.p.A. (Banco BPM or the Originator). The receivables are serviced by Credito Fondiario S.p.A. (Credito Fondiario or the Servicer). A backup servicer, Zenith Service S.p.A., was appointed. RATING RATIONALE The rating downgrade follows a review of the transaction and is based on the following analytical considerations: -- Transaction performance: assessment of portfolio recoveries as of December 31, 2020, focusing on: (1) a comparison between actual collections and the Servicer's initial business plan forecast; (2) the collection performance observed over the past months, including the period following the outbreak of the Coronavirus Disease (COVID-19); and (3) a comparison between the current performance and DBRS Morningstar's initial expectations. -- Credito Fondiario's updated business plan, received in May 2020, and the comparison with the initial collection expectations. -- Portfolio characteristics: loan pool composition as of December 2020 and evolution of its core features since issuance. -- Transaction liquidating structure: the order of priority entails a fully sequential amortization of the notes – i.e., the Class B notes will begin to amortize following the full repayment of the Class A notes and the Class J notes will amortize following the repayment of the Class B notes. Additionally, interest payments on the Class B notes become subordinated to principal payments on the Class A notes if the Cumulative Gross Collection Ratio or Net Present Value (NPV) Cumulative Profitability Ratio are lower than 70%. These triggers were not breached on the January 2021 interest payment date, with the actual figures being 86.2% and 106.3%, respectively, according to the Servicer. -- Liquidity support: the transaction benefits from an amortizing cash reserve providing liquidity to the structure covering against potential interest shortfall on the Class A notes and senior fees. The cash reserve target amount is equal to 4.0% of the sum of Class A and Class B notes principal outstanding and is currently fully funded. According to the latest payment report of January 2021, the principal amount outstanding of the Class A, Class B, and Class J notes was equal to EUR 1,006.8 million, EUR 221.5 million, and EUR 248.8 million, respectively. The balance of the Class A notes has amortized by approximately 30.1% since issuance. The current aggregated transaction balance is EUR 1,477.2 million. As of December 2020, the transaction was performing below the Servicer's initial expectations. The actual cumulative gross collections equal EUR 589.1 million, whereas Servicer's initial business plan estimated cumulative gross collections of EUR 699.6 million for the same period. Therefore, as of December 2020, the transaction was underperforming by EUR 110.6 million (-15.8%) compared with initial expectations. At issuance, DBRS Morningstar estimated cumulative gross collections for the same period of EUR 378.6 million at the BBB (sf) stressed scenario. Therefore, as of December 2020, the transaction is performing above DBRS Morningstar's initial stressed expectations. In May 2020, Credito Fondiario provided DBRS Morningstar with a revised business plan. In this updated business plan, the Servicer assumed lower recoveries compared with initial expectations. The total cumulative gross collections from the updated business plan account for EUR 2,184.5 million, which is 10.7% lower compared with the EUR 2,446.4 million expected in the initial business plan. Without including actual collections, the Servicer's expected future collections from January 2021 are now accounting for EUR 1,503.5 million (EUR 1,746.7 million in the initial business plan). The updated DBRS Morningstar BB (sf) rating stress assumes a haircut of 11.4% to the Servicer's latest business plan, considering future expected collections. The final maturity date of the transaction is July 2040. DBRS Morningstar analyzed the transaction structure using Intex DealMaker. The coronavirus and the resulting isolation measures have resulted in a sharp economic contraction, increases in unemployment rates, and reduced investment activities. DBRS Morningstar anticipates that collections in European nonperforming loan (NPL) securitizations will continue to be disrupted in the coming months and that the deteriorating macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collateral. The rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar incorporated its revised expectation of a moderate medium-term decline in property prices; however, partial credit to house price increases from 2023 onwards is given in non-investment grade scenarios. Notes: All figures are in Euros unless otherwise noted. =================== L U X E M B O U R G =================== ARVOS MIDCO: Moody's Hikes Prob. of Default Rating to Caa1-PD/LD ---------------------------------------------------------------- Moody's Investors Service affirmed the Caa1 corporate family rating of Arvos Midco S.a r.l. and upgraded the company's probability of default rating to Caa1-PD/LD from Caa3-PD. At the same time, Moody's appended the PDR with the "/LD" (limited default) designation. Concurrently, Moody's has withdrawn the Caa1 instrument ratings of the backed first lien senior secured term loan B maturing in August 2021 and the backed senior secured revolving credit facility maturing in May 2021 and has assigned a new Caa1 rating to the backed senior secured first lien term loan B maturing in August 2023 and the backed senior secured revolving credit facility maturing in May 2023 at Arvos Bidco S.a.r.l. The outlook on both entities remains negative. RATINGS RATIONALE The affirmation of the Caa1 CFR and the upgrade of the PDR by two notches to Caa1-PD/LD reflect the successful conclusion of Arvos' amend and extend proposal initially put forward to lenders in October 2020. This resolves the near-term refinancing risk because the original maturities of the RCF and first lien term loan in 2021 are now extended by two years. The amend and extend transaction has come into effective February 5, 2021 and is in Moody's view moderately credit positive, as the transaction alleviates concerns about the company's liquidity profile. Under Moody's definition this constitutes a distressed debt exchange and a default event. Moody's will remove the "/LD" designation from the PDR after three days. This transaction does not constitute an event of default under any of the company's debt agreements. The affirmation of the Caa1 CFR takes into account the highly levered capital structure with gross leverage, which reached 9.8x Moody's adjusted debt / EBITDA in fiscal year ended March 2020 (fiscal 2020) and increased further to about 13.5x following its operating performance in H1 of fiscal 2021. This level of leverage represents a capital structure that might be unsustainable in the longer term without any material improvement in EBITDA, in Moody's view, given that the transaction will not reduce its debt levels. It also reflects increasing risks that a recovery of credit metrics to more sustainable levels in the following fiscal year will be delayed, as the coronavirus pandemic continues to constrain investment decision-making at Arvos' customers. The challenging environment in Arvos' core markets including power generation, petrochemical and other industrial end markets continues to affect the company's order intake, which showed around 35% year-on-year decline in the first nine months of the current fiscal year (fiscal 2021). The rating takes in to account Arvos' strong competitive position in certain niches of the industrial equipment market and the company's liquidity profile which improved to adequate levels after the maturity extension. This is based on Moody's expectation that the company's cost-saving measures and disciplined working capital management will support at least break-even adjusted free cash flow (FCF) in fiscal 2022. LIQUIDITY Arvos' liquidity profile is adequate. As at December 31, 2020 the company had around EUR31 million of cash on balance sheet and around EUR21 million of availability under its EUR33 million RCF (the RCF commitments have reduced to EUR28 million following the closing of amend and extend transaction). These liquidity sources in combination with forecasted FFO generation should be sufficient to cover forecasted capital expenditure, scheduled debt amortizations and swings in working capital over the next 12-18 months. Moody's also expects that the amended financial covenants will be met at all times during the next 12-18 months, including a minimum liquidity covenant of EUR12 million. STRUCTURAL CONSIDERATIONS In Moody's assessment of the priority of claims in a default scenario for Arvos, Moody's distinguish between two layers of debt in the capital structure. First, the senior secured EUR28 million RCF, EUR241 million outstanding and $163 million outstanding senior secured first-lien term loans and trade payables rank pari passu on top of the capital structure. Then, behind these debt instruments are pension and lease obligations. The ratings of the first-lien instruments are aligned with the CFR at Caa1. Part of Arvos' equity is provided by way of a shareholder loan, which Moody's considers an equity-like instrument. RATING OUTLOOK The negative outlook on Arvos' rating reflects Moody's expectation of adjusted leverage remaining above 8x in fiscal 2022, with limited FCF to deleverage by the time the debt will be due. Furthermore the negative outlook reflects the risk that absent a performance improvement in the next 12-18 months refinancing risks will exacerbate again. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward pressure on the rating could materialize, if there are visible near term improvements in performance resulting in Moody's adjusted leverage decreasing below 6.5x. Furthermore, an upgrade of Arvos' ratings would require an adequate liquidity profile, including comfortable capacity under its covenants, at all times. Moody's would consider downgrading Arvos' rating, if liquidity weakens due to negative FCF or decreasing covenant headroom. Arvos' rating also could be downgraded if there are no operating performance improvements that result in a more sustainable capital structure. METHODOLOGY The principal methodology used in these ratings was Manufacturing Methodology published in March 2020. PROFILE Arvos Midco S.a r.l. (formerly Alison Midco S.a.r.l.) is the parent company of Arvos BidCo S.a.r.l., the parent company of the Arvos Group. Arvos is an auxiliary power equipment provider operating in new equipment and offering aftermarket services through two business divisions: Ljungstrom for Air Preheaters (APH), including air preheaters and gas-gas heaters for thermal power generation facilities; and Schmidt'sche Schack for Heat Transfer Solutions (HTS) for a wide range of industrial processes mainly in the petrochemical industry (Transfer Line Exchangers, Waste Heat Steam Generators and High-Temperature Products). In the 12 months ended September 2020, Arvos generated EUR298 million of sales and company-adjusted EBITDA of around EUR50.9 million. Arvos Group is a carve-out from Alstom and is fully owned by Triton funds and by its management. ===================== N E T H E R L A N D S ===================== PRINCESS JULIANA AIRPORT: Moody's Puts Ba3 on $142M Notes on Review ------------------------------------------------------------------- Moody's Investors Service placed the Ba3 rating assigned to Princess Juliana Intl Airport Op Company N.V.'s (PJIA) $142.6 million (Approximate original issuance amount) Senior Secured Notes due 2027 under review for downgrade. Moody's is also reassessing PJIA's Baseline Credit Assessment of b3 in light of ongoing operating challenges facing the airport. The rating action follows Moody's rating action in which the agency placed the Government of St. Maarten's (Baa3 RUR down) ratings under review for downgrade. Placed on Review for Downgrade: Issuer: Princess Juliana Intl Airport Op Company N.V. Senior Secured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba3 Outlook Actions: Issuer: Princess Juliana Intl Airport Op Company N.V. Outlook, Changed To Rating Under Review From Negative RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING The rating action reflects PJIA's linkages with the Government of St. Maarten, the support provider under our analytical framework for Government Related Issuers (GRI). Moody's estimates a Baseline Credit Assessment (BCA) of b3 representing the airport's stand-alone credit quality. Under the GRI framework, Moody's also incorporates its assessment of a "high" default dependence and a "strong" likelihood of potential extraordinary support from the Government of St. Maarten. The Ba3 rating assigned to PJIA incorporates a three-notch uplift from the assigned BCA. Moody's assigned Baseline Credit Assessment reflects PJIA's short-term challenges such as: (i) tight liquidity, (ii) breach of two covenants that require waivers from investors, (iii) debt service payments that will continue to be made in the coming quarters from IATA collections of Airport Departure Fees and liquidity available, mainly business interruption proceeds and (iv) the uncertainty around enplanement recovery in 2021. PJIA also benefits from a $20 million fully committed facility that may be used to cover operating expenditures during reconstruction of the airport. Moody's acknowledge the airport's essential role for St. Maarten's economy and its key role as a local hub connecting passengers to eight nearby tourist destinations. The rating also reflects the airport's weak enplanement trends as a result of the coronavirus outbreak. Enplanements in 2020 were 63% below 2019. For 2021 Moody's expect enplanements will improve but only to 50% of 2019, resulting in poor financial performance that will lead PJIA to continue to rely on available cash for its operations and meeting debt service payments. Importantly, in Moody's base case forecast Moody's do not expect PJIA to draw from its 6-month debt service reserve fund. In light of the review for downgrade, upward pressure on the ratings is unlikely in the near term. A downgrade on St. Maarten's rating could result in a downgrade of the ratings. In addition, increased liquidity pressures stemming from lower enplanement levels than expected could also exert downward pressure on the ratings. ABOUT PRINCESS JULIANA INTERNATIONAL AIRPORT Princess Juliana International Airport Operating Company N.V. is a private corporation with regulated rate setting ability. PJIAE operates the Princess Juliana International Airport, which is the major commercial airport on the island of Sint Maarten/Saint Martin and serves as a hub for connecting traffic to eight nearby Caribbean islands such as Anguilla, St. Barths, Tortola, Saba, St. Eustatius, Nevis, St. Kitts and Dominica. The sole owner of all capital stock in SXM is Princess Juliana International Airport Holding Company N.V., which is 100% owned by the Government of St. Maarten (Baa3 RUR down). SXM is managed by a Managing Director under supervision of a Supervisory Board consisting of between three and seven members. The methodologies used in this rating were Privately Managed Airports and Related Issuers published in September 2017. WERELDHAVE NV: Moody's Affirms B1 CFR, Alters Outlook to Stable --------------------------------------------------------------- Moody's Investors Service affirmed the B1 corporate family rating and the B1 rating on the backed senior unsecured bonds of Wereldhave N.V. The outlook was changed to stable from negative. Subsequently, Moody's will withdraw all of Wereldhave's ratings and the outlook for business reasons. RATINGS RATIONALE The rating affirmation and the stable outlook follows an improved liquidity profile and a weak but stabilising operating performance that is factored into the B1 rating. Liquidity has improved with Wereldhave entering into a number of refinancing transactions in the last three months that enables the company to cover its cash outflows into 2022 even assuming no further sales or renewing of financings including commercial papers. Moody's estimate full year valuation declines of around 10% for 2020 based on company disclosures, while Moody's expect valuation declines to continue into 2021. The company has disclosed a gross LTV assumingfull utilisation of its secured credit lines of 50.9%, which implies a 15% value decline headroom to covenants as of December 2020. The operating performance was weak with full year 2020 like-for-like net rental income down 21% compared to 2019, but stabilising from H1 with -27%, and occupancy holding up with 95% in shopping centers. EBITDA declines for full year 2020 were lower than initially anticipated with net debt/EBITDA remaining at around 10x based on preliminary calculations. Moody's nevertheless expect continued negative influence of ongoing business restrictions in parts of Wereldhave's portfolio on operating performance. Based in Schiphol, Wereldhave N.V. is a Dutch REIT owning and managing a portfolio of mid-sized shopping centres in urban centres across the Netherlands, Belgium and France. The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. =========== N O R W A Y =========== B2HOLDING ASA: S&P Alters Outlook to Stable & Affirms 'B+' ICR -------------------------------------------------------------- S&P Global Ratings revising its outlook on Norway-based debt purchaser B2Holding ASA (B2) to stable from negative and affirming its 'B+' long-term issuer credit rating. The stable outlook reflects S&P's expectation that B2 will maintain stable leverage metrics and covenant headroom over 2021, while uncertainty on the performance of the secured business and related strategic relevance remains. S&P said, "B2's financial performance in fourth-quarter 2020 was again better than we initially forecast and shows resilient collection performance. With cash collections of Norwegian krone (NOK)5.3 billion (about EUR520 million) over full-year 2020, performance was slightly better than in 2019, benefitting from the strong investment activity in 2019 and benign collection impact from the pandemic over 2020. Still, since some of the secured collections were repossessions and noncash, B2 reported a cash-adjusted EBITDA decrease to NOK3.6 billion under its new definition. With increasing purchase activity over 2021 and 2022, we expect a slight pick-up in leverage from about 3.0x as of end-2020, but expect our leverage metric (debt to cash-adjusted EBITDA) to remain between 3.0x and 3.5x over 2021 and 2022, which is better than most European peers we rate. "We remain cautious on the performance of the secured back-book and owned real estate. Gross collections over 2020 included a material portion of recovered assets, recorded as collateral assets on the balance sheet, that now amount to NOK873 million. B2 targets to maximize value in line with its new secured collection strategy, which implies that assets will remain on the balance sheet for longer. We also note the history of quarterly credit losses in the secured book over recent years, which in our view underlines the risk of additional revaluation losses in the current environment. With resilient collection performance over fourth-quarter 2020 in addition to a renegotiated revolving credit facility (RCF) and new bridge facility, downside liquidity risks have reduced. B2's financial metrics further recovered over the fourth quarter of 2020 and we therefore observe increasing covenant headroom. S&P said, "In the third quarter, we had already observed that some Nordic banks were supportive of B2's liquidity position, since Nordea and DNB (but not Swedbank) signed a new EUR100 million bridge facility, available to refinance B2's October 2021 bond maturity. B2 also extended its RCF maturity to 2023 and made it partially available to cover the October 2021 maturity (nominal EUR175 million, of which EUR111 million is still outstanding), so that B2 could repay the bond without new issuance, as long as the RCF remains available. B2 also repaid the December 2020 maturity using its RCF. Therefore, B2's liquidity position is now more ample than in April 2020, when we took a negative rating action on the company. Still, we note covenant headroom remains tighter than peers', and a material set back in collection performance or collateral revaluation could again exert pressure on B2's liquidity. At the same time, given relatively favorable bond spreads, we think some refinancing activity is likely over 2021." S&P said, "Portfolio investments picked up in the fourth quarter and we expect increasing market activity in 2021. With nonperforming loans within the financial sector increasing over 2021, we expect increasing supply for debt purchasers and expect a pickup in portfolio purchases for B2 after a muted 2020. As pricing of new portfolios will likely be attractive, we expect B2 will increasingly resume portfolio purchases next to its forward flows. We expect own portfolio purchases of up to NOK3 billion for 2021, after 1.8 billion in 2020. "We note risks related to possible footprint reduction and changes in strategy for the secured portfolio. As part of the strategic plan announced in 2019, B2Holding is exploring possible options to reduce its geographic footprint to focus on its core markets. A reduction in geographical diversification could somewhat harm B2's revenue profile, especially given the macroeconomic uncertainties driven by the pandemic, which can be partially mitigated by strong geographic diversification. In addition, B2Holding has been changing its strategy for secured assets, opting for renovation and turnaround of operations rather than immediate liquidation of collateral. We are concerned that this more selective approach could delay cash collection and increases the risk of future downside revaluations. That said, we acknowledge the cost savings initiatives introduced in 2020 which supports B2's strong collection efficiency. "The stable outlook reflects our expectation that B2 will show a resilient earnings and cash flow performance over 2021. This should support a gradual improvement in interest coverage and leverage metrics alongside generally increasing covenant headroom. "We could consider a positive rating action over the next 12 months if B2 shows a sustained track record of collection performance and quality of real estate owned, likely supported by further stabilization of the European economy. This would reduce setback risk and provide a better view on the franchise value of its secured collection business. An upgrade would also be conditional on B2 continuing to build buffers against its covenant threshold, since some renewed cyclicality of cash flows could surface again in 2021. "We could lower the rating on B2 if we expected a marked deterioration in secured or unsecured collections or credit losses, leading to diminishing covenant headroom, and if we expected less support from banks in terms of the RCF availability in case of a covenant breach." HURTIGRUTEN GROUP: Moody's Completes Review, Retains Caa1 Rating ---------------------------------------------------------------- Moody's Investors Service has completed a periodic review of the ratings of Hurtigruten Group AS and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review discussion held on February 4, 2021 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since January 1, 2019, Moody's practice has been to issue a press release following each periodic review to announce its completion. This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. Key rating considerations Hurtigruten's Caa1 rating reflects the company's (i) well-known brand and distinctive offering in the expedition and Norwegian coast markets; (ii) limited cash burn through the third quarter of 2020 owing to significant reduction in operations and cost cutting undertaken by the company; (iii) recent release of EUR60 million of restricted cash to support liquidity; and (iv) moderate level of reimbursements. Counterbalancing these strengths are Hurtigruten's (i) exposure to leisure travel markets severely depressed by the coronavirus pandemic; (ii) leveraged balance sheet following debt-financed capital spend; (iii) high fixed cost structure in the cruising industry; (iv) moderate scale; and (v) a measure of fuel volatility, although the company employs hedging strategies. The principal methodology used for this review was Business and Consumer Service Industry published in October 2016. SECTOR ALARM: Moody's Completes Review, Retains B1 CFR ------------------------------------------------------ Moody's Investors Service has completed a periodic review of the ratings of Sector Alarm Holding AS and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review discussion held on February 11, 2021 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since January 1, 2019, Moody's practice has been to issue a press release following each periodic review to announce its completion. This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. Key rating considerations Sector Alarm Holding AS's B1 corporate family rating reflects its strong position in the European residential home and small business monitored alarms (RHSB), with a leading presence in its three key countries of operation (Norway, Sweden and Ireland). The company's credit profile is supported by stable recurring revenues from its customer base of more than 550,000 subscribers and its ability to grow its business in both existing and new markets, driven by the low penetration of monitored alarms in Europe. The ratings also take into consideration risk from competition in the sector, combined with a potential technological threat from new entrants, as well as the company's relatively small overall size and limited geographical diversification. The principal methodology used for this review was Business and Consumer Service Industry published in October 2016. ========= S P A I N ========= CAIXABANK LEASINGS 3: Moody's Affirms B1 Rating on Serie B Notes ---------------------------------------------------------------- Moody's Investors Service has upgraded the rating of Serie A Notes in CAIXABANK LEASINGS 3, FONDO DE TITULIZACION. The rating action reflects the increased levels of credit enhancement for the affected Notes. Moody's affirmed the rating of the Serie B Notes that had sufficient credit enhancement to maintain their current rating. EUR1573.8M Serie A Notes, Upgraded to Aa2 (sf); previously on Jun 25, 2019 Definitive Rating Assigned Aa3 (sf) EUR256.2M Serie B Notes, Affirmed B1 (sf); previously on Jun 25, 2019 Definitive Rating Assigned B1 (sf) The transaction is a static cash securitisation of credit rights (interest and principal, excluding the purchase option and indirect taxes such as VAT) derived from lease receivables granted by CaixaBank, S.A. ("CaixaBank", Long Term Deposit Rating: A3 /Short Term Deposit Rating: P-2, Long Term Counterparty Risk Assessment: A3(cr) /Short Term Counterparty Risk Assessment: P-2(cr)) to small and medium-sized enterprises, self-employed individuals and corporates located in Spain. RATINGS RATIONALE The rating action is prompted by an increase in credit enhancement for the affected tranche. The credit enhancement (CE) for Serie A Notes has increased to 29.2% from 18.9% since the closing in June 2019. The transaction has deleveraged significantly with the pool factor currently standing at 58.9%. Revision of Key Collateral Assumptions: As part of the rating action, Moody's reassessed its default probability for the portfolio reflecting the collateral performance to date. The performance of the transaction has slightly deteriorated over the last year. Total delinquencies have increased in the past year, with 90 days plus arrears currently standing at 0.66% of current pool balance. Cumulative defaults currently stand at 0.21% of original pool balance up from 0.01% a year earlier. Moody's increased the default probability assumption to 11.1% from 8.2% in CAIXABANK LEASINGS 3, FONDO DE TITULIZACION which combined with an updated CoV of 44.8%, corresponds to a portfolio credit enhancement of 26%. The increased default probability assumptions reflect the updated portfolio breakdown including the borrower concentration among other credit risk factors. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Counterparty Exposure The rating action took into consideration the Notes' exposure to relevant counterparties, such as servicer or account bank. Moody's considered how the liquidity available in the transactions and other mitigants support continuity of Note payments, in case of servicer default, using the CR assessment as a reference point for servicers. Moody's also assessed the default probability of the account bank provider by referencing the bank's deposit rating. Principal Methodology The principal methodology used in these ratings was "Moody's Global Approach to Rating SME Balance Sheet Securitizations" published in May 2020. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include (1) performance of the underlying collateral that is better than Moody's expected; (2) an increase in available credit enhancement; (3) improvements in the credit quality of the transaction counterparties; and (4) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include (1) an increase in sovereign risk; (2) performance of the underlying collateral that is worse than Moody's expected; (3) deterioration in the Notes' available credit enhancement; and (4) deterioration in the credit quality of the transaction counterparties. =========== S W E D E N =========== IGT HOLDING IV: S&P Raises LongTerm ICR to 'B', Outlook Stable -------------------------------------------------------------- S&P Global Ratings raised to 'B' from 'B-' its long-term issuer credit rating on Sweden-based provider of enterprise applications software IGT Holding IV AB (IFS) and its issue rating on the company's senior secured term loan. S&P revised its recovery rating on the term loan upward to '3' from '4'. S&P said, "The stable outlook reflects our expectation that IFS will continue to report organic revenue growth of 12%-15% and maintain adjusted EBITDA margins above 20%, underpinned by a strong focus on sales and marketing initiatives and increased cloud offerings amid growing demand. "We expect IFS to achieve organic annual revenue growth of 10%-15% in the coming years." The pandemic and related economic disruption in 2020 created a risk of revenue disruptions and cash collection issues that could have undermined IFS' operating performance. However, IFS reported revenue growth of around 10% in 2020, outperforming the market. Sudden reductions in demand in various markets and the increasing prevalence of work-from-home practices have increased the pressure on companies to become more efficient and flexible. This has accelerated their digital transformation plans, which rely heavily on the software solutions that IFS provides. This was the key driver of IFS's solid growth in the weak economic environment. We expect that companies' continued investment in their digital transformation, coupled with the modular and mission-critical nature of IFS's solutions, will drive solid organic annual revenue growth of 10%-15% for the company in the coming years. Continued investment in M&A should see reported revenue growth of around 15%-20%. Tight cost control and an improved product mix will result in significant margin uplift. IFS's management was already focused on cost control prior to the pandemic. This, together with an improving business mix, resulted in functional improvements in the margins of its licensing, maintenance, and cloud hosting divisions. Management has implemented additional stringent cost-control measures as a precautionary measure since the start of the pandemic. S&P said, "As such, we expect IFS to report solid margin growth, with S&P Global Ratings-adjusted EBITDA rising above 20.0% in 2020 from 14.5% in 2019. While we expect some of IFS's costs to return in 2021 as business activity picks up, continued cost-saving initiatives like employee offshoring and rightsizing should help the company maintain its adjusted EBITDA margin above 20% on a sustainable basis." An improving revenue mix will lead to a more predictable earnings profile. As IFS continues to focus on cloud or software-as-a-service (SaaS) solutions and license-based software solutions, the revenue mix is shifting from low-margin consulting business to higher-margin software solutions. As a result, the share from consulting revenue dipped to 28% in 2020 from 40% in 2017, one of drivers of the improving EBITDA margins. Furthermore, as IFS continues to transition from a perpetual license billing model and on-premise deployment to a subscription-based billing model and cloud-based deployment, the share of recurring revenue continues to grow, reaching around 58% in 2020 compared with 37% in 2017. This adds predictability to future earnings. S&P believes that the pandemic and related economic disruption have helped IFS in its transition to a subscription-based billing model and cloud-based deployment as customers are more willing to pay a smaller annual sum than a larger one-time license payment, and given the prevalence of work-from-home practices, they prefer cloud-based deployment to on-premise deployment. Free operating cash flow (FOCF) to debt is likely to remain above 5%. S&P said, "Favorable working capital movements boosted FOCF in 2020, and while we expect some reversal in the coming years, we think it will stay above 5% on a sustainable basis. Various pandemic-related initiatives reduced accounts receivable in 2020, which substantially improved net working capital and temporarily boosted FOCF such that FOCF to debt reached around 10% in 2020. However, we expect accounts receivable to normalize from 2021 and receivables to increase as more customers choose subscription payments rather than upfront license payments. We therefore expect the change in net working capital to turn negative. Nevertheless, rational capital expenditure (capex; including capitalized R&D) should help IFS maintain FOCF to debt above 5% on a sustainable basis. Capex represented 7% of total revenues in 2020 down from 11% in 2019." A more favorable financial policy should help IFS maintain adjusted leverage below 8x. IFS has a track record of tolerance for high leverage, as evident in 2019, when its adjusted leverage was 13x. However, the company has implemented a more favorable financial policy, with an internal target of net debt to EBITDA that translates into the maintenance of adjusted leverage below 8x. The company's appetite for mergers and acquisitions (M&A) will remain high, and S&P sees a likelihood of recapitalizations to fund future acquisitions or dividends. However, the solid EBITDA growth and new leverage target offer headroom for re-leveraging without exceeding our rating thresholds. Solid growth prospects translate into stronger deleveraging capabilities than peers. This largely offsets the potentially negative impact of M&A. IFS has a track record of double-digit earnings growth, supported by management's multi-faceted strategy for revenue growth and profitability improvements. To boost revenue in 2020, management increased the average deal size by over 25%; focused on value-generating contracts; won a number of new large contracts, resulting in increased revenue per deal; repriced the maintenance and support services; and concentrated on upselling and cross-selling products, as well as on cloud and SaaS. As a result, IFS beat the competition in its addressable markets and increased its customer base. S&P believes that strong growth momentum across the various businesses will continue to drive double-digit organic revenue growth in the coming years, well above the low-single-digit growth we expect on average for the other enterprise resource planning vendors it rates. Management's continued focus on costs will increase EBITDA margins in the coming years, continuing the track record. As such, S&P expects strong growth in EBITDA exceeding 15% annually, which will allow for swift deleveraging. S&P said, "The stable outlook reflects our expectation that IFS will continue to report revenue growth of 15%-20% and maintain adjusted EBITDA margins above 20%, underpinned by its strong focus on sales and marketing initiatives and increased cloud offerings amid growing demand. We expect IFS's adjusted debt to EBITDA to remain below 8x and FOCF to debt above 5% on a sustainable basis. "We could lower the rating if IFS's FOCF to debt falls below 5% or its adjusted debt to EBITDA rises above 8x on a sustainable basis. This could result from a weakening operating performance through intense competition, higher customer churn, loss of market share, or the adoption of a more aggressive financial policy. "We see further rating upside as remote over the next 24 months as IFS's financial policy is still aggressive. We could raise our ratings on IFS if its adjusted leverage declined to below 5.5x and its FOCF to debt improved to above 10%. This could happen with continued strong double-digit revenue growth, combined with a strengthening of adjusted EBITDA margins to more than 25%, most likely resulting from a prudent exit strategy such as an IPO." =========== T U R K E Y =========== [*] TURKEY: Top Airports Seek Government Support Amid Pandemic -------------------------------------------------------------- Kerim Karakaya, Ercan Ersoy and Asli Kandemir at Bloomberg News report that Turkey's top airports are seeking government support worth hundreds of millions of dollars as the coronavirus crisis shatters demand at some of the world's biggest terminals, people familiar with the situation said. According to Bloomberg, the people, who asked not to be named as discussions are private, said hubs including Istanbul's new US$9 billion facility pressed state airport authority DHMI for rental deferrals, discounts and contract extensions in joint talks. The people said negotiations are likely to result in bespoke terms reflecting the different circumstances at each airport, Bloomberg relates. Turkey's domestic market protected its airports from the level of collapse seen in western Europe last year, Bloomberg recounts. Even so, the loss of tourist and transit traffic took a toll, Bloomberg notes. Istanbul's main hub, opened in 2019, utilized just a quarter of its 90 million-passenger capacity, while Sabiha Gokcen, the city's second base, run by Malaysia Airports Holdings Bhd, saw a 52% fall, Bloomberg states. Five airports including Ankara and Izmir managed by Aeroports de Paris had a 70% drop, Bloomberg discloses. TAV announced that DHMI had agreed to extend operating periods for two years and delay rent payments due in 2022 to 2024 for five of its airports in Turkey, Bloomberg relays. The people said the airports all have varying requirements from the talks, Bloomberg notes. According to Bloomberg, while four Turkish builders that operate the new Istanbul hub through IGA Havalimani Isletmesi AS must pay an annual fee of EUR1.1 billion (US$1.33 billion) under a 25-year lease contract, the company is guaranteed compensation until traffic reaches break-even. =========================== U N I T E D K I N G D O M =========================== CARLYLE GLOBAL 2014-1: Fitch Affirms B- Rating on Class F-RR Notes ------------------------------------------------------------------ Fitch Ratings has affirmed all tranches of Carlyle Global Market Strategies Euro CLO 2014-1 DAC and revised the Outlook on the class D, E and F notes to Stable from Negative. DEBT RATING PRIOR ---- ------ ----- Carlyle Global Market Strategies Euro CLO 2014-1 DAC A-RR XS1839725378 LT AAAsf Affirmed AAAsf B-1-RR XS1839725964 LT AAsf Affirmed AAsf B-2-RR XS1839726004 LT AAsf Affirmed AAsf B-3-RR XS1847616296 LT AAsf Affirmed AAsf C-1-RR XS1839726186 LT Asf Affirmed Asf C-2-RR XS1847611495 LT Asf Affirmed Asf D-RR XS1839726269 LT BBBsf Affirmed BBBsf E-RR XS1839726343 LT BBsf Affirmed BBsf F-RR XS1839725295 LT B-sf Affirmed B-sf TRANSACTION SUMMARY The transaction is cash flow CLOs, mostly comprising senior secured obligations. The deal is within the reinvestment period and is actively managed by CELF Advisors LLP. KEY RATING DRIVERS Asset Performance Stable Asset performance has been stable since the previous review. As per the trustee report dated 5 January 2021, the deal is below target par by 110bp and all coverage tests, portfolio profile tests and Fitch related collateral quality tests are passing, except for the Fitch weighted average rating factor (WARF) and Fitch 'CCC' limit tests. Exposure to assets with a Fitch-derived rating of 'CCC+' and below as calculated by Fitch on 6 February 2021 is 9.71% (or 11.16% including the unrated names, which Fitch treats as 'CCC' per its methodology, while the manager can classify as 'B-' for up to 10% of the portfolio), compared with the 7.5% limit. There is no exposure to defaulted assets. Resilience to Coronavirus Stress The affirmations reflect the broadly stable portfolio credit quality since the previous review. The Stable Outlooks on the investment-grade notes, and the revision of the Outlook on the class D, E and F notes to Stable from Negative, reflect the default rate cushion in the sensitivity analysis Fitch ran in light of the coronavirus pandemic. Fitch recently updated its CLO coronavirus stress scenario to assume half of the corporate exposure on Negative Outlook is downgraded by one notch instead of 100%. For more details on Fitch’s pandemic-related stresses see "Fitch Ratings Expects to Revise Significant Share of CLO Outlooks to Stable". 'B'/'B-' Portfolio Fitch assesses the average credit quality of the obligors to be in the 'B'/'B-' category. As at 06 2021, the Fitch-calculated WARF of the portfolio is 37.17. High Recovery Expectations Senior secured obligations make up 98.40% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. As per the latest trustee report, the Fitch weighted average recovery rate of the portfolio is 64.5%. Well-Diversified Portfolio The portfolio is well diversified across obligors, countries and industries. The top 10 obligor concentration is no more than 12.6% and no obligor represents more than 1.3% of the portfolio balance. The top Fitch industry and top three Fitch industry concentrations are also within the defined limits of 17.5% and 40%, respectively. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- At closing, Fitch used a standardised stress portfolio (Fitch's stressed portfolio) that was customised to the portfolio limits as specified in the transaction documents. Even if the actual portfolio shows lower defaults and smaller losses (at all rating levels) than Fitch's stressed portfolio assumed at closing. An upgrade of the notes during the reinvestment period is unlikely as the portfolio credit quality may still deteriorate, not only through natural credit migration, but also through reinvestments. Upgrades may occur after the end of the reinvestment period on better-than expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover for losses in the remaining portfolio. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- Downgrades may occur if the build-up of credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. As disruptions to supply and demand due to the pandemic become apparent, loan ratings in those sectors will also come under pressure. Fitch will update the sensitivity scenarios in line with the view of its Leveraged Finance team. Coronavirus Downside Sensitivity Fitch has added a sensitivity analysis that contemplates a more severe and prolonged economic stress caused by a re-emergence of infections in the major economies. The potential severe downside stress incorporates the following stresses: applying a notch downgrade to all the corporate exposure on Negative Outlook (representing 30.03% of the portfolio). This scenario does not result in downgrades across the capital structure. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Carlyle Global Market Strategies Euro CLO 2014-1 DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European Securities and Markets Authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. EMERALD 2 LIMITED: Moody's Completes Review, Retains B2 CFR ----------------------------------------------------------- Moody's Investors Service has completed a periodic review of the ratings of Emerald 2 Limited and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review discussion held on February 11, 2021 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since January 1, 2019, Moody's practice has been to issue a press release following each periodic review to announce its completion. This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. Key rating considerations Emerald 2 Limited ("ERM") is a global leading provider of environmental, health, safety, risk and social consulting services with over 160 offices in over 40 countries. The group's B2 CFR is supported by a strong market position as the only global pure-play provider of environmental consulting services with relatively stable EBITDA margin through the cycle and solid free cash flow generation. ERM's credit profile is constrained by the exposure to cyclical sectors, including energy and mining, and the need to retain and attract qualified workforce and the reliance on key partners that hold the commercial relationships with clients. The rating is weakly positioned within its rating category. Moody's forecasts are under constant review to assess the impact of the COVID-19 on issuers' trading performance. The principal methodology used for this review was Business and Consumer Service Industry published in October 2016. ENQUEST PLC: S&P Places 'CCC+' ICR on CreditWatch Positive ---------------------------------------------------------- S&P Global Ratings placed its 'CCC+' ratings on oil and gas producer EnQuest PLC on CreditWatch positive, implying that it may raise the ratings by one notch following the completion of the transaction. On Feb. 4, 2021, EnQuest announced the acquisition of a 26.69% interest in the Golden Eagle Area in the North Sea, which will strengthen its business. The company will finance the initial consideration of $325 million using debt, equity, and interim cash flows. Simultaneously, EnQuest will refinance its existing $377 million credit facility, due October 2021. This will remove the liquidity risk that is reflected in our 'CCC+' rating on EnQuest. The refinancing should simplify EnQuest's capital structure. EnQuest aims to refinance its Kraken 15% facility and Magnus vendor loan using the new senior secured debt facility. As a result, its capital structure will consist of the new senior secured loan and the existing unsecured bonds, due October 2023. Once it has completed this acquisition, EnQuest plans to focus on debt reduction for the next few years. The company says that it aims to repay the new credit facility by October 2023, when its bonds mature. In S&P's view, this transaction could form an interim step in EnQuest's journey toward a lower debt burden, allowing the company to build headroom under the rating over time. The new asset will increase EnQuest's expected production by about 10,000 barrels of oil equivalent per day (boepd). S&P said, "We forecast that EnQuest's production will be 46,000 boepd-52,000 boepd in 2021, excluding the Golden Eagle Area acquisition. The acquisition would therefore allow the company to maintain broadly stable volumes compared with the 59,116 boepd it produced in 2020. We assume a Brent oil price of $50 per barrel, suggesting that EnQuest will be able to post pro forma S&P Global Ratings-adjusted EBITDA of about $650 million-$700 million in 2021 if the transaction completes successfully. The final adjusted debt will depend on the final capital structure and on the amount of debt-like liabilities (in particular, asset retirement obligations). That said, we expect that pro forma adjusted debt to EBITDA could be about 4.5x and funds from operations to debt about 20%. We see this leverage as sustainable, and supportive of a higher rating." The CreditWatch positive placement indicates that S&P could raise its rating on EnQuest after it completes the Golden Eagle Area acquisition and the associated refinancing. The transaction would remove the liquidity risk and improve adjusted debt to EBITDA to below 4.5x. Any potential rating upside will likely be limited to one notch. INSPIRED ENTERTAINMENT: Moody's Completes Ratings Review -------------------------------------------------------- Moody's Investors Service has completed a periodic review of the ratings of Inspired Entertainment, Inc. and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review discussion held on February 11, 2021 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since January 1, 2019, Moody's practice has been to issue a press release following each periodic review to announce its completion. This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. Key rating considerations Inspired Entertainment, Inc.'s Caa1 rating reflects the company's (1) leading positions as a niche player in its core markets; (2) circa 90% recurring revenues based largely on profit sharing, although this is dependent on footfall which is current subject to betting shop and pub closures, and; (3) the company's well invested asset base which will reduce capex pressure in the next few years. The Caa1 rating is challenged by (1) reduced financial flexibility following the severe coronavirus impact to its business which resulted in a default; (2) the company's relatively small scale in a competitive market and geographic concentration in the UK, although there is a niche aspect to the business as well as a growing international presence, and; (3) exposure to the risks of social pressures in the context of evolving regulation in the UK. The principal methodology used for this review was Business and Consumer Service Industry published in October 2016. STRATTON MORTGAGE 2021-1: Fitch Assigns BB Rating on Class E Debt ----------------------------------------------------------------- Fitch Ratings has assigned Stratton Mortgage Funding 2021-1 plc (Stratton) final ratings. DEBT RATING PRIOR ---- ------ ----- Stratton Mortgage Funding 2021-1 plc A XS2295993724 LT AAAsf New Rating AAA(EXP)sf B XS2295994292 LT AAsf New Rating AA(EXP)sf C XS2295994532 LT Asf New Rating A(EXP)sf D XS2295995000 LT BBBsf New Rating BBB(EXP)sf E XS2295995695 LT BBsf New Rating BB(EXP)sf X1 XS2295997121 LT NRsf New Rating NR(EXP)sf Z1 XS2295996743 LT NRsf New Rating NR(EXP)sf Z2 XS2295997048 LT NRsf New Rating NR(EXP)sf x2 XS2295997394 LT NRsf New Rating NR(EXP)sf TRANSACTION SUMMARY Stratton is a securitisation of non-prime owner-occupied (OO) and buy-to-let (BTL) mortgages backed by properties in the UK. The mortgages were originated primarily by GMAC-RFC (24.8%), Irish Permanent Isle of Man (23.1%), Platform Homeloans (17.8%) and Rooftop Mortgages (12.2%). KEY RATING DRIVERS Coronavirus-related Additional Assumptions Fitch expects a generalised weakening in borrowers' ability to keep up with mortgage payments due to the economic impact of the coronavirus pandemic and related containment measures. As a result, Fitch applied updated criteria assumptions to Stratton's mortgage portfolio (see EMEA RMBS: Criteria Assumptions Updated due to Impact of the Coronavirus Pandemic). The combined application of revised 'Bsf' representative pool's weighted average foreclosure frequency (WAFF) and revised rating multiples for both the OO and the BTL sub-pools, resulted in a 'Bsf' multiple to the current FF assumptions ranging from 1.1x to 1.2x at 'Bsf' and about 1.0x at 'AAAsf' in each sub-pool. The updated assumptions are more modest for higher ratings as the corresponding rating assumptions are already meant to withstand more severe shocks. Seasoned Non-Prime Loans The portfolio consists of seasoned loans, originated primarily between 2006 and 2008. The OO loans (63.4% of the pool) contain a high proportion of self-certified (61.5%) and interest-only (84.8%) loans, and loans to borrowers with county court judgements (21.4%). Fitch therefore applied its non-conforming assumptions to this sub-pool. When setting the originator adjustment for the portfolio Fitch considered factors including the historical performance measured by the average annualised constant default rate of the portfolio. This resulted in an originator adjustment of 1.0x for the OO sub-pool and 1.5x for the BTL sub-pool. Unhedged Basis Risk The pool contains 54.6% loans linked to the Bank of England base rate (BBR), 40.9% are linked to Libor and remainder are linked to a standard variable rate (there are also a very small number of fixed rate loans, 0.4%, that will revert to a floating rate). As the notes pay daily compounded SONIA, the transaction will be exposed to basis risk between the BBR and SONIA. Fitch stressed the transaction cash flows for basis risk, in line with its criteria. The Libor-linked loans are expected to be amended to an alternative rate within 12 months of closing due to the discontinuation of Libor. As this rate is expected to be the BBR, Fitch has also applied its basis stress to these loans. Interest Cap on Notes The interest-bearing notes from class B and below are subject to a cap on daily compounded SONIA at 8.0%. The maximum interest amount due will be equal to the cap plus the relevant margin (before or after the step-up date). As the asset pool comprises floating-rate loans and such a cap does not apply to the asset yield, this transaction feature is positive for the notes' credit risk in rising interest rate scenarios and neutral in stable or decreasing interest rate scenarios. This transaction feature has been captured in Fitch's analysis in line with its structured finance and covered bonds interest rate stresses rating criteria. RATING SENSITIVITIES Downgrade Rating Sensitivity to Coronavirus-Related Stresses The broader global economy remains under stress due to the coronavirus pandemic, with surging unemployment and pressure on businesses stemming from social distancing guidelines. Government measures related to the coronavirus pandemic introduced a suspension on tenant evictions, a moratorium on repossessing property and mortgage payment holidays for up to a total of six months. Fitch acknowledges the uncertainty of the path of coronavirus-related containment measures and has therefore considered more severe economic scenarios. As outlined in Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases, Fitch considers a more severe downside coronavirus scenario for sensitivity purposes whereby a more severe and prolonged period of stress is assumed with a halting recovery from 2Q21. Under this scenario, Fitch assumed a 15% increase in the WAFF and a 15% decrease in the weighted average recovery rate (WARR). The results indicate up to a rating category downgrade for classes A, B and C and an adverse impact of up to five notches on the class D and class E notes. The class D and E notes show more significant vulnerability to performance deterioration. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- The transaction's performance may be affected by changes in market conditions and economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce credit enhancement available to the notes. -- Unanticipated declines in recoveries could also result in lower net proceeds, which may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in recoveries. Fitch conducts sensitivity analyses by stressing a transaction's base-case WAFF and WARR assumptions by 30% each. As a result, the class A and B notes' ratings would deviate from the assigned rating by up to two categories while the class C notes would deviate from the assigned rating by seven notches and the class D notes by three categories. The class E notes could be downgraded to a distressed rating. Factors that could, individually or collectively, lead to positive rating action/upgrade: -- Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing credit enhancement levels and consideration for potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the WAFF of 15% and an increase in the WARR of 15%. This implies upgrades of two notches for the class B notes, and four notches for the class C, D and E notes. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis. Overall, and together with the assumptions referred to above, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is reliable. ESG CONSIDERATIONS Stratton has an ESG relevance score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security, due to the pool exhibiting an interest-only maturity concentration amongst the legacy non-conforming OO loans of greater than 40%, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Stratton has an ESG relevance score of '4' for Human Rights, Community Relations, Access & Affordability, due to a significant proportion of the pool containing OO loans advanced with limited affordability checks, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. STRATTON MORTGAGE 2021-1: S&P Assigns Prelim. BB Rating on E Notes ------------------------------------------------------------------ S&P Global Ratings has assigned credit ratings to Stratton Mortgage Funding 2021-1 PLC's class A, B-Dfrd, C-Dfrd, D-Dfrd, and E-Dfrd notes. At closing, Stratton Mortgage Funding 2021-1 also issued unrated classes Z and X notes. S&P based its credit analysis on a GBP444.7 million pool as of the Nov. 30, 2020, cut-off date. The loan-level data for the closing pool as of Jan. 31, 2021--which contained the same loan agreements amortized over two months--were not available to us before the closing date. The pool comprises first-ranking nonconforming, reperforming, owner-occupied, and buy-to-let mortgage loans that were positively selected from "Project Sunbury" (Sunbury portfolio) or served as risk retention loans in Warwick 1 and Warwick 2, or were previously securitized in Leek (Moonraker portfolio). Link ASI Ltd. and Link Mortgage Services Ltd. are the servicers for the Sunbury portfolio, and Western Mortgage Services Ltd. is the servicer for the Moonraker portfolio. Subordination and excess spread provide credit enhancement to the class A to E-Dfrd notes, which are senior to the unrated notes and certificates. The class A to D-Dfrd notes also benefit from the liquidity reserve that provides liquidity support and credit enhancement to those classes. S&P said, "We rate the class A notes based on the payment of timely interest. Interest on the class A notes is equal to the daily compounded Sterling overnight index average (SONIA) plus a class-specific margin. "We treat the class B-Dfrd, C-Dfrd, D-Dfrd, and E-Dfrd notes as deferrable-interest notes in our analysis. Under the transaction documents, the issuer can defer interest payments on these notes. Our ratings on these classes of notes address the ultimate payment of principal and interest. Once the ultimate interest notes become the most senior, interest payments will be paid on a timely basis, excluding class E-Dfrd, on which will continue to address the ultimate payment of interest. "Our ratings reflect our assessment of the transaction's payment structure and cash flow mechanics, to assess whether the notes would be repaid under stress test scenarios. Our cash flow analysis and related assumptions also consider the sensitivity of the transaction to the repercussions of the COVID-19 outbreak. Namely, we have modeled a potential increase in default rates and an extension in recovery timing as part of our cash flow analysis. "In view of the non-conforming and reperforming nature of the underlying pool, we believe it would be quite sensitive to a projected increase in unemployment rates as per our base macroeconomic scenario. Our ratings therefore reflect the results of our sensitivity analysis rather than our standard run." As vaccine rollouts in several countries continue, S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic and its economic effects. Widespread immunization, which certain countries might achieve by midyear, will help pave the way for a return to more normal levels of social and economic activity. S&P said, "We use this assumption about vaccine timing in assessing the economic and credit implications associated with the pandemic. As the situation evolves, we will update our assumptions and estimates accordingly." Preliminary Ratings Class Rating Amount (mil. GBP) A AAA (sf) 340.65 B-Dfrd AA (sf) 28.50 C-Dfrd A (sf) 24.20 D-Dfrd BBB (sf) 22.00 E-Dfrd BB (sf) 8.80 Z1 NR 15.40 Z2 NR 8.31 X1 NR 6.60 X2 NR 2.20 NR--Not rated. TAURUS 2021-1: Moody's Gives (P)Ba3 Rating to GBP33M Class E Notes ------------------------------------------------------------------ Moody's Investors Service has assigned the following provisional ratings to the debt issuance of Taurus 2021-1 UK DAC (the "Issuer"): GBP158M Class A Notes Commercial Mortgage Backed Floating Rate Notes due 2031, Assigned (P)Aaa (sf) GBP40M Class B Notes Commercial Mortgage Backed Floating Rate Notes due 2031, Assigned (P)Aa3 (sf) GBP36M Class C Notes Commercial Mortgage Backed Floating Rate Notes due 2031, Assigned (P)A3 (sf) GBP56M Class D Notes Commercial Mortgage Backed Floating Rate Notes due 2031, Assigned (P)Baa3 (sf) GBP33.1M Class E Notes Commercial Mortgage Backed Floating Rate Notes due 2031, Assigned (P)Ba3 (sf) Taurus 2021-1 UK DAC is a true sale transaction of a floating rate loan totalling GBP 340.1 million. The issuer will on-lend the proceeds to the borrower who will use the proceeds to finance the acquisition and related transaction closing costs of 45 logistics, warehouse and light industrial assets located in the UK and predominantly in or around Greater London. There will be a GBP 85.0 million mezzanine facility that is contractually and structurally subordinated to the senior facility. Moody's issues provisional ratings in advance of the final sale of financial instruments, but these ratings only represent Moody's preliminary credit opinions. Upon a conclusive review of a transaction and associated documentation, Moody's will endeavour to assign definitive ratings. A definitive rating (if any) may differ from a provisional rating. RATINGS RATIONALE The rating actions are based on: (i) Moody's assessment of the real estate quality and characteristics of the collateral; (ii) analysis of the loan terms; and (iii) the expected legal and structural features of the transaction. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of commercial real estate from the current weak UK economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The key parameters in Moody's analysis are the default probability of the securitised loan (both during the term and at maturity) as well as Moody's value assessment of the collateral. Moody's derives from these parameters a loss expectation for the securitised loan. Moody's default risk assumptions are low/medium for the loan. The key strengths of the transaction include: (i) the very good quality urban logistics and light industrial portfolio; (ii) the low to medium default risk; (iii) the good tenant diversity; and (iv) the experienced sponsor and asset manager. Challenges in the transaction include: (i) the additional mezzanine debt that increased the overall leverage; (ii) the lack of amortisation; (iii) the weak covenants; and (iv) the increased uncertainty around the impact of the coronavirus crisis. The Moody's LTV of the securitised loan at origination is 75.4%. Moody's has applied a property grade of 1.5 for the portfolio (on a scale of 1 to 5, 1 being the best). The principal methodology used in these ratings was "Moody's Approach to Rating EMEA CMBS Transactions" published in October 2020. Factors That Would Lead to an Upgrade or Downgrade of the Ratings: Main factors or circumstances that would lead to a downgrade of the ratings are generally: (i) a decline in the property values backing the underlying loan; (ii) an increase in the default probability of the loan; and (iii) changes to the ratings of some transaction counterparties. Main factors or circumstances that could lead to an upgrade of the ratings are generally: (i) an increase in the property values backing the underlying loan; or (ii) a decrease in the default probability driven by improving loan performance or decrease in refinancing risk. VUE INTERNATIONAL: Moody's Completes Review, Retains Caa2 Rating ---------------------------------------------------------------- Moody's Investors Service has completed a periodic review of the ratings of Vue International Bidco plc and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review discussion held on February 4, 2021 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since January 1, 2019, Moody's practice has been to issue a press release following each periodic review to announce its completion. This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. Key rating considerations Vue's Caa2 rating reflects (1) the uncertainty around the extent of the coronavirus related disruptions which has significantly impacted fiscal year (FY) 2020 as well as Q12021 earnings, (2) the reliance on liquidity buffer (which improved in Q42020 after additional debt issuance) while majority of theatres remain fully/ partially closed, such buffer is likely to cover the cash burn for the coming months, provided the company continues to manage its liquidity requirements cautiously; (3) the threat posed by premium video-on-demand (PVoD) providers and the recent trend of direct-to-home screening which could become more common place, and (4) the significantly elevated Moody's adjusted leverage, which will remain high over a sustained period of time. The rating also reflects (1) the good revenue diversification by geography, (2) the lesser degree of reliance on Hollywood blockbusters given the support of local content in Europe, and (3) the strong value proposition offered by the industry. The principal methodology used for this review was Business and Consumer Service Industry published in October 2016. [*] Moody's Upgrades Ratings on 11 Notes of 3 UK RMBS Transactions ------------------------------------------------------------------ Moody's Investors Service has upgraded the ratings of 11 Notes in three UK non-conforming RMBS transactions: Dukinfield II plc, Oncilla Mortgage Funding 2016-1 plc and Stanlington No. 1 PLC. The upgrade action reflects the increased levels of credit enhancement for the affected Notes and better than expected collateral performance. Moody's affirmed the ratings of the Notes that had sufficient credit enhancement to maintain their current ratings. A List of Affected Credit Ratings is available at: https://bit.ly/2NtSeRq RATINGS RATIONALE The rating action is prompted by sequential amortisation and fully funded non-amortising reserve funds, resulting in an increase in credit enhancement for the affected tranches, as well as decreased key collateral assumptions, namely the portfolio Expected Loss (EL) assumptions due to better than expected collateral performance and the MILAN CE assumption for Stanlington No. 1 PLC. Increase in Available Credit Enhancement Sequential amortisation and non-amortising reserve funds led to the increase in the credit enhancement available in these transactions. All the transactions feature dual ledger reserve funds; and are sized as follows: 9.5 million, 6.8 million and 4.7 million in Dukinfield II plc, Oncilla Mortgage Funding 2016-1 plc and Stanlington No. 1 PLC respectively. The reserves are available to cover shortfalls in interest payments as well as to cure PDL for the affected tranches in all transactions apart from Oncilla Mortgage Funding 2016-1 plc where the reserves are only available to cover interest shortfalls during the life of the transaction. The credit enhancement for Classes B and C in Dukinfield II plc has increased to 37.7% and 30% from 26.1% and 20.6% at the closing date in September 2016. The credit enhancement for Classes B, C, D and E in Oncilla Mortgage Funding 2016-1 plc increased to 36.0%, 28.0%, 21.9% and 15.1% from 30.6%, 23.4%, 18.0% and 11.9% since the last rating action in September 2019. The credit enhancement for Classes B, C, D and E in Stanlington No. 1 PLC has increased to 27.6%, 20.6%, 16.3% and 12.8% from 19.4%, 14.4%, 11.3% and 8.8% at the closing date in March 2017. Key Collateral Assumptions: As part of the rating action, Moody's reassessed its lifetime loss expectation for the portfolios reflecting the collateral performance to date. The performance of all transactions have continued to be stable with low losses since closing. The 90 days plus arrears in Dukinfield II plc, Oncilla Mortgage Funding 2016-1 plc and Stanlington No. 1 PLC respectively are 8.59%, 6.47% and 9.31% of current pool balance; albeit cumulative losses are just 0.47%, 0.22% and 0.44% as a percentage of original pool balance respectively. Moody's decreased the expected loss assumptions in Dukinfield II plc from 7% to 6%, in Oncilla Mortgage Funding 2016-1 plc from 7% to 6% and in Stanlington No. 1 PLC from 7% to 6% as a percentage of original pool balance, due to the better than expected performance. Moody's has also assessed loan-by-loan information as a part of its detailed transaction review to determine the credit support consistent with target rating levels and the volatility of future losses. As a result, Moody's has decreased the MILAN CE assumption of Stanlington No. 1 PLC to 25% from 27% and maintained the MILAN CE assumptions at 30% for Dukinfield II plc and at 30% for Oncilla Mortgage Funding 2016-1 plc. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of consumer assets from the current weak UK economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in December 2020. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include: (1) performance of the underlying collateral that is better than Moody's expected; (2) an increase in available credit enhancement; (3) improvements in the credit quality of the transaction counterparties; and (4) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include: (1) an increase in sovereign risk; (2) performance of the underlying collateral that is worse than Moody's expected; (3) deterioration in the Notes' available credit enhancement; and (4) deterioration in the credit quality of the transaction counterparties. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2021. All rights reserved. ISSN 1529-2754. 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