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Hayfin Emerald CLO X DAC European Cash Flow CLO Notes Assigned Ratings

Ratings List
Class Rating Amount (mil. €) Subordination (%) Interest rate*
A AAA (sf) 270.00 40.00 3M EURIBOR + 169.5 bps
B1 AA (sf) 21.90 29.87 3M EURIBOR + 315 bps
B2 AA (sf) 23.70 29.87 535 bps
C A (sf) 24.60 24.40 3M EURIBOR + 430 bps
D BBB- (sf) 30.30 17.67 3M EURIBOR + 524 bps
E BB- (sf) 21.40 12.91 3M EURIBOR + 686 bps
F B- (sf) 15.30 9.51 3M EURIBOR + 995 bps
Sub. NR 37.10 N/A N/A
*The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. 3M--Three month. EURIBOR--Euro Interbank Offered Rate. Bps--Basis point. NR--Not rated. N/A—-Not applicable.


  • Hayfin Emerald CLO X is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Hayfin Emerald Management LLP manages the transaction.
  • We assigned our ratings to the class A, B-1, B-2, C, D, E, and F notes.
  • The ratings reflect our view of the transaction's diversified collateral pool, credit enhancement, and legal structure, among other factors.

LONDON (S&P Global Ratings) Sept. 22, 2022--S&P Global Ratings today assigned its credit ratings to Hayfin Emerald CLO X DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the issuer also issued unrated subordinated notes (see list above).

The class F notes is a delayed draw tranche. It is unfunded at closing and has a maximum notional amount of €15.3 million and a maximum spread of three/six-month Euro Interbank Offered Rate (EURIBOR) plus 9.95%. The class F notes can only be issued once and only during the reinvestment period for the full €15.3 million amount. The issuer used the full proceeds received from the issuance of the class F notes to redeem the subordinated notes. At issuance, the class F notes' spread can be lowered subject to rating agency confirmation.

Under the transaction documents, the rated notes pay quarterly interest unless there is a frequency switch event. Following this, the notes will switch to semiannual payment.

The portfolio's reinvestment period will end on Oct. 15, 2024.

The ratings assigned to the notes reflect our assessment of:

  • The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests.
  • The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization.
  • The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading.

Portfolio Benchmarks
S&P Global Ratings weighted-average rating factor 2726.79
Default rate dispersion 549.04
Weighted-average life (years) 4.89
Obligor diversity measure 106.71
Industry diversity measure 20.26
Regional diversity measure 1.14

Transaction Key Metrics
Total par amount (mil. €) 450.0
Defaulted assets (mil. €) 0.0
Number of performing obligors 127
Portfolio weighted-average rating derived from our CDO evaluator B
'CCC' category rated assets (%) 0.0
'AAA' weighted-average recovery (%) 35.14
Covenanted weighted-average spread (%) 3.95
Reference weighted-average coupon (%) 3.45
Rating rationale

Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio is well-diversified on the effective date, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs (see "Global Methodology And Assumptions For CLOs And Corporate CDOs," published on June 21, 2019).

In our cash flow analysis, we used the €450 million par amount, the covenanted weighted-average spread of 3.95%, the reference weighted-average coupon of 3.45%, and the rating-specific recovery rates for the rated notes. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category.

The transaction's documented counterparty replacement and remedy mechanisms to adequately mitigate its exposure to counterparty risk under our current counterparty criteria at the time of assigning final ratings (see "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019).

Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk is limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria (see "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions," published on Jan. 30, 2019).

The transaction's legal structure is bankruptcy remote, in line with our legal criteria (see "Structured Finance: Asset Isolation And Special-Purpose Entity Methodology," published on March 29, 2017).

Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1 to E notes could withstand stresses commensurate with higher ratings than those we have assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our ratings on the notes. Our cash flow analysis indicates that the available credit enhancement for the class A, B-1, B-2, C, D, and E notes is commensurate with the ratings assigned.

The class F notes' current break-even default rate (BDR) cushion is negative at the current rating level. Nevertheless, based on the portfolio's actual characteristics and additional overlaying factors, including our long-term corporate default rates and recent economic outlook, we believe this class is able to sustain a steady-state scenario, in accordance with our criteria (see "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published on Oct. 1, 2012). Our analysis further reflects several factors, including:

  • The class F notes' available credit enhancement, which is in the same range as that of other CLOs we have rated and that have recently been issued in Europe.
  • Our model-generated portfolio default risk, which is at the 'B-' rating level at 25.81% versus 15.28% if we were to consider a long-term sustainable default rate of 3.1% for a weighted-average life of 4.89 years.
  • Whether the tranche is vulnerable to nonpayment in the near future.
  • If there is a one-in-two chance for this note to default.
  • If we envision this tranche to default in the next 12-18 months.

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 F notes to five of the 10 hypothetical scenarios we looked at in our publication, "How Credit Distress Due To COVID-19 Could Affect European CLO Ratings," published on April 2, 2020. The results shown in the chart below are based on the actual weighted-average spread, coupon, and recoveries.

Environmental, social, and governance (ESG) factors

We regard the exposure to ESG credit factors in the transaction as being broadly in line with our benchmark for the sector (see "ESG Industry Report Card: Collateralized Loan Obligations," March 31, 2021). Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to certain activities, including, but not limited to, the following: an obligation of a company whose revenues are more than 0% derived from the development, production, maintenance, trade, or stockpiling of weapons of mass destruction or in the trade of illegal drugs or illegal narcotics; one whose revenues are more than 20% derived from products that contain tobacco or are involved in non-certified palm oil production; one whose revenues are more than 10% derived from the mining of thermal coal or oil sands extraction; and one whose revenues are more than 20% derived from trading in endangered or protected wildlife. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities.

Related Criteria

Related Research

Primary Credit Analyst:Sandeep Chana, London + 44 20 7176 3923;
Secondary Contacts:Hanshu Shao, London + 44 20 7176 0834;
Emanuele Tamburrano, London + 44 20 7176 3825;
Research Contributor:Harshala Koyande, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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