| Ratings List | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Class | Rating | Amount (mil. €) | Subordination (%) | Interest rate* | ||||||
| A | AAA (sf) | 211.80 | 39.49 | Three/six-month EURIBOR plus 1.84% | ||||||
| B-1 | AA (sf) | 27.80 | 28.97 | Three/six-month EURIBOR plus 3.00% | ||||||
| B-2 | AA (sf) | 9.00 | 28.97 | 6.50% | ||||||
| C | A (sf) | 17.50 | 23.97 | Three/six-month EURIBOR plus 3.85% | ||||||
| D | BBB (sf) | 22.80 | 17.46 | Three/six-month EURIBOR plus 5.85% | ||||||
| E | BB- (sf) | 15.40 | 13.06 | Three/six-month EURIBOR plus 6.91% | ||||||
| F§ | B- (sf) | 12.00 | 9.63 | Three/six-month EURIBOR plus 11.00% | ||||||
| Sub | NR | 35.40 | N/A | N/A | ||||||
| *The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. §The class F notes is a delayed drawdown tranche, which is not issued at closing. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. | ||||||||||
Overview
- Capital Four CLO V DAC is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Capital Four CLO Management K/S manages the transaction as lead manager and Capital Four Management Fondsmæglerselskab A/S as co-collateral manager.
- We have 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) March 8, 2023--S&P Global Ratings today assigned its credit ratings to Capital Four CLO V 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).
Under the transaction documents, the rated notes pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payment.
This transaction has a two-year non-call period and the portfolio's reinvestment period ends approximately four and a half years after closing.
The ratings assigned to the notes reflect our assessment of:
- The diversified collateral pool, which consists primarily of broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests.
- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization.
- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading.
| Portfolio Benchmarks | |
|---|---|
| Current | |
| S&P Global Ratings weighted-average rating factor | 2,766.81 |
| Default rate dispersion | 424.39 |
| Weighted-average life (years) | 4.83 |
| Obligor diversity measure | 111.74 |
| Industry diversity measure | 18.74 |
| Regional diversity measure | 1.35 |
| Transaction Key Metrics | |
|---|---|
| Current | |
| Total par amount (mil. €) | 350.00 |
| Defaulted assets (mil. €) | 0 |
| Number of performing obligors | 122 |
| Portfolio weighted-average rating derived from our CDO evaluator | B |
| 'CCC' category rated assets (%) | 0.00 |
| 'AAA' target portfolio weighted-average recovery (%) | 37.56 |
| Covenanted weighted-average spread (%) | 3.92 |
| Covenanted weighted-average coupon (%) | 3.90 |
Delayed draw tranche
The class F notes is a delayed draw tranche. It is unfunded at closing and has a maximum notional amount of €12.00 million and a spread of three/six-month Euro Interbank Offered Rate (EURIBOR) plus 11.00%. The class F notes can only be issued once and only during the reinvestment period. The issuer will use the proceeds received from the issuance of the class F notes to redeem the subordinated notes. Upon issuance, the class F notes' spread could be higher (compared with the issue date) subject to rating agency confirmation. For the purposes of our analysis, we assumed the class F notes to be outstanding at closing.
Asset priming obligations and uptier priming debt
Under the transaction documents, the issuer can purchase asset priming (drop down) obligations and uptier priming debt to address the risk of a distressed obligor either moving collateral outside the existing creditors' covenant group or incurring new money debt senior to the existing creditors (see "European CLO Features Evolve Further In Response To Changing Market Conditions," published on Sept. 7, 2022).
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 will primarily comprise 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 €350 million par amount, the covenanted weighted-average spread of 3.92% and the covenanted portfolio weighted-average recovery rates for all 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 adequately mitigate its exposure to counterparty risk under our counterparty criteria (see "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019).
Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria (see "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions," published on Jan. 30, 2019).
The transaction's legal structure is bankruptcy remote, in line with our legal criteria (see "Structured Finance: Asset Isolation And Special-Purpose Entity Methodology," published on March 29, 2017).
Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1 to F notes could withstand stresses commensurate with higher rating levels than those we have assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our assigned ratings on the notes. The class A notes can withstand stresses commensurate with the assigned rating.
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 class A, B-1, B-2, C, D, E, and F notes.
In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. The results are shown in the chart below
As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes.
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," published on 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 the following industries: controversial weapons, casinos, pornography or prostitution, payday lending, tobacco, coal, palm oil, weapons, hazardous chemicals, endangered wildlife, or hazardous chemicals, waste, and pesticide. 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.
Environmental, social, and governance (ESG) corporate credit indicators
The influence of ESG factors in our credit rating analysis of European CLOs primarily depends on the influence of ESG factors in our analysis of the underlying corporate obligors. To provide additional disclosure and transparency of the influence of ESG factors for the CLO asset portfolio in aggregate, we've calculated the weighted-average and distributions of our ESG credit indicators for the underlying obligors (see "The Influence Of Corporate ESG Factors In Our Credit Rating Analysis Of European CLOs," published on April 20, 2022). We regard this transaction's exposure as being broadly in line with our benchmark for the sector, with the environmental and social credit indicators concentrated primarily in category 2 (neutral) and the governance credit indicators concentrated in category 3 (moderately negative) (see "ESG Credit Indicator Report Card: Global CLOs," published on Nov. 24, 2022).
| Corporate ESG Credit Indicators | ||||||||
|---|---|---|---|---|---|---|---|---|
| Environmental | Social | Governance | ||||||
| Weighted-average credit indicator* | 2.03 | 2.15 | 2.87 | |||||
| E-1/S-1/G-1 distribution (%) | 1.37 | 0.00 | 0.00 | |||||
| E-2/S-2/G-2 distribution (%) | 80.25 | 75.37 | 15.46 | |||||
| E-3/S-3/G-3 distribution (%) | 3.83 | 6.94 | 67.94 | |||||
| E-4/S-4/G-4 distribution (%) | 0.00 | 3.14 | 0.00 | |||||
| E-5/S-5/G-5 distribution (%) | 0.00 | 0.00 | 2.06 | |||||
| Unmatched obligor (%) | 9.26 | 9.26 | 9.26 | |||||
| Unidentified asset (%) | 5.29 | 5.29 | 5.29 | |||||
| Only includes matched obligor. | ||||||||
The manager will provide an ESG monthly report that will include:
- The portfolio's weighted-average ESG score and distribution;
- The portfolio's weighted-average carbon intensity; and
- The list of obligors that have been reclassified as ESG ineligible obligations.
Capital Four V DAC is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Capital Four CLO Management K/S manages the transaction as a lead manager and Capital Four Management Fondsmæglerselskab A/S as a co-collateral manager.
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates In Structured Finance, Oct. 18, 2019
- Criteria | Structured Finance | CDOs: Global Methodology And Assumptions For CLOs And Corporate CDOs, June 21, 2019
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013
- Criteria | Structured Finance | General: Global Derivative Agreement Criteria, June 24, 2013
- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Weekly European CLO Update, Feb. 13, 2023
- ESG Credit Indicator Report Card: Global CLOs, Nov. 24, 2022
- European CLO Features Evolve Further In Response To Changing Market Conditions, Sept. 7, 2022
- The Influence Of Corporate ESG Factors In Our Credit Rating Analysis Of European CLOs, April 20, 2022
- ESG Industry Report Card: Collateralized Loan Obligations, March 31, 2021
- 2017 EMEA Structured Credit Scenario And Sensitivity Analysis, July 6, 2017
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
| Primary Credit Analyst: | Rebecca Mun, London + 44 20 7176 3613; rebecca.mun@spglobal.com |
| Secondary Contacts: | Emanuele Tamburrano, London + 44 20 7176 3825; emanuele.tamburrano@spglobal.com |
| Shubham Verma, London (44) 20-7176-0858; Shubham.Verma@spglobal.com |
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