Overview
- We raised our ratings on Purple Finance CLO 1 DAC's class B, C, D, and E notes due to deleveraging.
- At the same time, we affirmed our rating on the class A and F notes.
- Purple Finance CLO 1 DAC is a cash flow CLO transaction securitizing mainly European leveraged loans and is managed by MV Credit Partners LLP.
LONDON (S&P Global Ratings) Nov. 9, 2023--S&P Global Ratings today raised its credit ratings on Purple Finance CLO 1 DAC's class B notes to 'AAA (sf)' from 'AA (sf)', class C to 'AA+ (sf)' from 'A (sf)', class D to 'A (sf)' from 'BBB (sf)', and class E to 'BB+ (sf)' from 'BB (sf)'. We also affirmed our 'AAA (sf)' rating on the class A notes and our 'B- (sf)' rating on the class F notes.
Purple Finance CLO 1 is a cash flow CLO transaction securitizing a portfolio of primarily senior secured euro-denominated leveraged loans and bonds issued by European borrowers. The transaction is managed by MV Credit Partners LLP. Its reinvestment period ended in January 2022.
Today's rating actions follow the application of our relevant criteria and our credit and cash flow analysis of the transaction based on the September 2023 trustee report.
Since the end of the reinvestment period, the class A notes have amortized to 47% of their initial size. As a result, the credit enhancement has increased for the class A, B, C, D, and E notes, and has remained stable for the class F notes.
Despite some deterioration of the portfolio's weighted-average rating since closing to 'B' from 'B+', our scenario default rates (SDRs) have benefited from a reduction of the portfolio's weighted-average life to 3.37 years from 6.20 years and have decreased at each rating level.
According to the September 2023 trustee report, all of the notes are paying current interest and all the coverage tests are passing.
Table 1
Assets key metrics | ||||||
---|---|---|---|---|---|---|
Current* | As of closing | |||||
Portfolio weighted-average rating | B | B+ | ||||
'CCC' assets (%) | 4.7 | 0.0 | ||||
Weighted-average life (years) | 3.37 | 6.20 | ||||
Obligor diversity measure | 66.7 | 92.7 | ||||
Industry diversity measure | 19.3 | 20.6 | ||||
Regional diversity measure | 1.1 | 1.3 | ||||
Total collateral amount (mil. €)§ | 200.34 | 300.00 | ||||
Defaulted assets (mil. €) | 0.97 | 0.00 | ||||
Number of performing obligors | 80 | 110 | ||||
'AAA' SDR (%) | 58.06 | 66.68 | ||||
'AAA' WARR (%) | 37.32 | 37.39 | ||||
*Based on the portfolio composition as reported by the trustee in September 2023 and S&P Global Ratings' data as of October 2023. §Performing assets plus cash and expected recoveries on defaulted assets. SDR--Scenario default rate. WARR--Weighted-average recovery rate. |
Table 2
Liabilities key metrics | ||||||||
---|---|---|---|---|---|---|---|---|
Class | Current amount (mil. €) | Current credit enhancement (based on the September 2023 trustee report) (%) | Credit enhancement at closing (%) | |||||
A | 81.60 | 59.3 | 42.1 | |||||
B | 45.70 | 36.5 | 26.9 | |||||
C | 20.40 | 26.3 | 20.1 | |||||
D | 15.00 | 18.8 | 15.1 | |||||
E | 13.80 | 11.9 | 10.5 | |||||
F | 9.50 | 7.2 | 7.3 | |||||
Credit enhancement = [Performing balance + cash balance + recovery on defaulted obligations (if any) – tranche balance (including tranche balance of all senior tranches)] / [Performing balance + cash balance + recovery on defaulted obligations (if any)]. |
Following the application of our relevant criteria, we believe that the class B, C, D, and E notes can now withstand higher rating scenarios. We have raised our ratings on the class B and C notes, in line with the results of our credit and cash flow analysis.
Our standard cash flow analysis indicates that the available credit enhancement levels for the class D and E notes are commensurate with higher ratings those assigned. Although the transaction has amortized considerably since the end of the reinvestment period in 2022, we have also considered the level of cushion between our break-even default rate (BDR) and SDR for these notes at their passing rating levels, as well as the current macroeconomic conditions and these classes of notes' relative seniority. We have therefore limited our upgrades on these notes below our standard analysis passing levels.
Our credit and cash flow analysis indicates that the class A notes are still commensurate with a 'AAA (sf)' rating, and the class F notes with a 'B- (sf)' rating. We have therefore affirmed our rating on the class A and class F notes.
Counterparty, operational, and legal risks are adequately mitigated in line with our criteria.
Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria (see "Related Criteria").
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates In Structured Finance, Oct. 18, 2019
- Criteria | Structured Finance | CDOs: Global Methodology And Assumptions For CLOs And Corporate CDOs, June 21, 2019
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- Criteria | Structured Finance | General: Global Derivative Agreement Criteria, June 24, 2013
- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Ratings Assigned To European Cash Flow CLO Transaction Purple Finance CLO 1, Jan. 10, 2018
- 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: | Vanessa Cecillon, London + 44 20 7176 3581; vanessa.cecillon@spglobal.com |
Secondary Contact: | Emanuele Tamburrano, London + 44 20 7176 3825; emanuele.tamburrano@spglobal.com |
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