THE CARLYLE GROUP INC. Fitch Ratings has assigned Carlyle Euro CLO 2021-3 DAC expected ratings, as detailed below.
The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed.
RATING ACTIONS
Entity / Debt
Rating
Carlyle Euro CLO 2021-3 DAC
A-1
LT
Expected Rating
A-2-A
LT
AA(EXP)sf
Expected Rating
A-2-B
LT
AA(EXP)sf
Expected Rating
B
LT
A(EXP)sf
Expected Rating
C
LT
BBB-(EXP)sf
Expected Rating
D
LT
BB-(EXP)sf
Expected Rating
E
LT
B-(EXP)sf
Expected Rating
Subordinated Notes
LT
NR(EXP)sf
Expected Rating
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
Carlyle Euro CLO 2021-3 DAC is a securitisation of mainly senior secured loans. The note proceeds will be used to fund an identified portfolio with a target par of
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors at the 'B'/'B-' levels. The Fitch weighted average rating factor (WARF) of the identified portfolio is 24.5.
Strong Recovery Expectation (Positive): At least 90% of the portfolio will comprise 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 identified portfolio is 62.9%.
Diversified Portfolio (Positive): The top-10 obligor limit for the transaction is at 20%. The transaction also includes various concentration limits, including the maximum exposure to the three-largest Fitch-defined industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a five-year reinvestment period and includes reinvestment criteria similar to those of other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines.
Cash flow Modelling (Neutral): The WAL used for the transaction's stressed portfolio is 12 months less than the WAL covenant, to account for strict reinvestment conditions after the reinvestment period, including passing the over-collateralisation (OC) tests and Fitch 'CCC' limit tests, together with a linearly decreasing WAL covenant. This ultimately reduces the maximum possible risk horizon of the portfolio when combined with loan pre-payment expectations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
An increase of the default rate (RDR) at all rating levels by 25% of the mean RDR and a decrease of the recovery rate (RRR) by 25% at all rating levels will result in downgrades of no more than four 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 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 would result in upgrades of up to five notches, depending on the notes, except for the class A notes, which are already at the highest rating on Fitch's scale and cannot be upgraded.
After the end of the reinvestment period, upgrades may occur on better-than-initially expected portfolio credit quality and deal performance, leading to higher credit enhancement 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.
SUMMARY OF FINANCIAL ADJUSTMENTS
No published financial statements were used in the rating analysis.
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
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.
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.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction. Offering Documents for this market sector typically do not include RW&Es that are available to investors and that relate to the asset pool underlying the trust. Therefore, Fitch credit reports for this market sector will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
APPLICABLE CRITERIA
CLOs and Corporate CDOs Rating Criteria (pub.
Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub.
Global Structured Finance Rating Criteria (pub.
Structured Finance and Covered Bonds Country Risk Rating Criteria (pub.
Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub.
Structured Finance and Covered Bonds Counterparty Rating Criteria (pub.
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Multi-Asset Cash Flow Model, v2.11.0 (1)
Portfolio Credit Model, v2.14.0 (1)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ENDORSEMENT STATUS
Carlyle Euro CLO 2021-3 DAC EU,UK Endorsed
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