ARB HOLDINGS LIMITED
Fitch Ratings has upgraded Bain Capital Euro CLO 2018-2 DAC's class E notes and affirmed the class
The class B-1-R through F notes have been removed from Under Criteria Observation (UCO), and all Rating Outlooks remain Stable.
RATING ACTIONS
Entity / Debt
Rating
Prior
Bain Capital Euro CLO 2018-2 DAC
A-R XS2326485898
LT
AAAsf
Affirmed
AAAsf
B-1-R XS2326486516
LT
AAsf
Affirmed
AAsf
B-2-R XS2326487167
LT
AAsf
Affirmed
AAsf
C XS1890841452
LT
Asf
Affirmed
Asf
D XS1890840058
LT
BBBsf
Affirmed
BBBsf
E XS1890842930
LT
BBsf
Upgrade
BB-sf
F XS1890843235
LT
B-sf
Affirmed
B-sf
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Transaction Summary
Bain Capital Euro CLO 2018-2 DAC is a cash flow CLO comprised of mostly senior secured obligations. The transaction is actively managed by Bain Capital Credit
KEY RATING DRIVERS
CLO Criteria Update: The rating actions mainly reflect the impact of Fitch's recently updated CLOs and Corporate CDOs Rating Criteria, and the shorter risk horizon incorporated in Fitch's updated stressed portfolio analysis. The analysis considered cash flow modelling results for the stressed portfolio based on the
The transaction has two matrices, based on 18% and 26.5% Top 10 Obligor limits, and Fitch analyzed the matrix specifying the 18% limit, as the agency viewed this matrix as the most ratings relevant. Fitch also applied a haircut of 1.5% to the weighted average recovery rate (WARR) as the calculation of the WARR in transaction documentation reflects an earlier version of Fitch's CLO criteria.
The Stable Outlooks on all classes reflect Fitch's expectation that the classes have sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio in stress scenarios commensurate with such class's rating.
Deviation from Model-Implied Ratings: The ratings assigned to all notes, except the class A-R and F notes, are one notch below their respective model implied ratings. The deviations reflect the remaining reinvestment period until
Stable Asset Performance: The transaction metrics indicate stable asset performance. The transaction is passing all coverage tests, collateral quality tests, and portfolio profile tests. Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and below is 5.7% excluding non-rated assets, as calculated by Fitch.
'B' Portfolio: Fitch assesses the average credit quality of the transaction's underlying obligors in the 'B' category. The Fitch weighted average rating factor (WARF), as calculated by the trustee, was 33.2, which is below the maximum covenant of 36.0. The WARF, as calculated by Fitch under the updated criteria, was 24.7.
High Recovery Expectations: Senior secured obligations comprise 99.1% of the portfolio as calculated by the trustee. Fitch views the recovery prospects for these assets as more favorable than for second-lien, unsecured and mezzanine assets. The Fitch WARR reported by the trustee was 66.4%, against the covenant at 63.9%.
Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is 12.3%, and no obligor represents more than 1.5% of the portfolio balance, as reported by the trustee.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
An increase of the rating default rate (RDR) at all rating levels by 25% of the mean RDR and a decrease of the rating recovery rate (RRR) by 25% at all rating levels in the stressed portfolio will result in downgrades of up to four notches, depending on the notes;
Downgrades may occur if the build-up of the notes' credit enhancement (CE) does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A reduction of the RDR at all rating levels by 25% of the mean RDR and an increase in the RRR by 25% at all rating levels in the stressed portfolio would result in an upgrade of up to five notches, depending on the notes;
Except for the tranches already at the highest 'AAAsf' rating, upgrades may occur in the case of better than expected portfolio credit quality and deal performance that leads to higher CE and excess spread available to cover losses in the remaining portfolio.
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. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
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 Recognized Statistical Rating Organizations and/or
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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Additional information is available on www.fitchratings.com
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