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Dartry Park CLO Designated Activity Company -- Moody's upgrades the ratings on EUR 99m CLO notes of Dartry Park CLO Designated Activity Company

·19 min read

Rating Action: Moody's upgrades the ratings on EUR 99m CLO notes of Dartry Park CLO Designated Activity Company

Global Credit Research - 18 Dec 2020

Moody's also affirms the ratings on EUR 194.8m of notes

Madrid, December 18, 2020 -- Moody's Investors Service ("Moody's") has upgraded the ratings on the following notes issued by Dartry Park CLO Designated Activity Company:

....EUR 30,000,000 Refinancing Class A-2A Senior Secured Floating Rate Notes due 2029, Upgraded to Aaa (sf); previously on Dec 8, 2020 Aa1 (sf) Placed Under Review for Possible Upgrade

....EUR 12,000,000 Refinancing Class A-2B Senior Secured Fixed Rate Notes due 2029, Upgraded to Aaa (sf); previously on Dec 8, 2020 Aa1 (sf) Placed Under Review for Possible Upgrade

....EUR 24,000,000 Refinancing Class B Senior Secured Deferrable Floating Rate Notes due 2029, Upgraded to Aa2 (sf); previously on Dec 8, 2020 A1 (sf) Placed Under Review for Possible Upgrade

....EUR 21,500,000 Refinancing Class C Senior Secured Deferrable Floating Rate Notes due 2029, Upgraded to A3 (sf); previously on Dec 8, 2020 Baa1 (sf) Placed Under Review for Possible Upgrade

....EUR 11,500,000 Class E Senior Secured Deferrable Floating Rate Notes due 2029, Upgraded to B1 (sf); previously on Sep 5, 2019 Affirmed B2 (sf)

Moody's has also affirmed the ratings on the following notes:

....EUR 238,000,000 (current outstanding amount EUR 166,830,630) Refinancing Class A-1A Senior Secured Floating Rate Notes due 2029, Affirmed Aaa (sf); previously on Sep 5, 2019 Affirmed Aaa (sf)

....EUR 5,000,000 (current outstanding amount EUR 3,504,845) Refinancing Class A-1B Senior Secured Fixed Rate Notes due 2029, Affirmed Aaa (sf); previously on Sep 5, 2019 Affirmed Aaa (sf)

....EUR 24,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2029, Affirmed Ba2 (sf); previously on Sep 5, 2019 Affirmed Ba2 (sf)

Dartry Park CLO Designated Activity Company, issued in March 2015, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Blackstone Ireland Limited. The transaction's reinvestment period ended in April 2019.

Today's action conclude the rating review on the Classes A-2A, A-2B, B and C notes initiated on 8 December 2020, "Moody's upgrades 23 securities from 11 European CLOs and places ratings of 117 securities from 44 European CLOs on review for possible upgrade", http://www.moodys.com/viewresearchdoc.aspx?docid=PR_437186.

RATINGS RATIONALE

The rating upgrades on the Classes A-2A, A-2B, B, C and E notes are primarily due to the update of Moody's methodology used in rating CLOs, which resulted in a change in overall assessment of obligor default risk and calculation of weighted average rating factor (WARF). Based on Moody's calculation, the WARF is currently 3016 after applying the revised assumptions as compared to the trustee reported WARF of 3316 as of November 2020 [1].

Today's actions also reflects the deleveraging of the Classes A-1A and A-1B following the amortisation of the underlying portfolio since the payment date in October 2020 [2].

The Class A-1A and A-1B notes have paid down by approximately EUR37.8 million (18.2%) in the last 6 months. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure. According to the trustee report dated November 2020 [1] the Class A, Class B, Class C and Class D OC ratios are reported at 150.5%, 135.20%, 123.9% and 113.2% compared to May 2020 [3] levels of 143.2%, 130.7%, 121.2% and 111.9%, respectively.

The rating affirmations on the Classes A-1A, A-1B and D notes reflects the expected losses of the notes continuing to remain consistent with their current ratings after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralization (OC) levels as well as applying Moody's revised CLO assumptions.

The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers.

In its base case, Moody's used the following assumptions:

Performing par and principal proceeds balance: EUR321.1m

Defaulted Securities: NIL

Diversity Score: 46

Weighted Average Rating Factor (WARF): 3016

Weighted Average Life (WAL): 3.83 years

Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.51%

Weighted Average Coupon (WAC): 4.72%

Weighted Average Recovery Rate (WARR): 46.04%

Par haircut in OC tests and interest diversion test: 0.49%

The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing.

Moody's notes that the credit quality of the CLO portfolio has deteriorated since earlier this year as a result of economic shocks stemming from the coronavirus outbreak. Corporate credit risk remains elevated, and Moody's projects that default rates will continue to rise through the first quarter of 2021. Although recovery is underway in the US and Europe, it is a fragile one beset by unevenness and uncertainty. As a result, Moody's analyses continue to take into account a forward-looking assessment of other credit impacts attributed to the different trajectories that the US and European economic recoveries may follow as a function of vaccine development and availability, effective pandemic management, and supportive government policy responses.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Methodology Underlying the Rating Action:

The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1242167. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Counterparty Exposure:

Today's rating action took into consideration the notes' exposure to relevant counterparties, such as account bank and swap providers using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2020. Moody's concluded the ratings of the notes are not constrained by these risks.

Factors that would lead to an upgrade or downgrade of the ratings:

This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the note, in light of uncertainty about credit conditions in the general economy. In particular, the length and severity of the economic and credit shock precipitated by the global coronavirus pandemic will have a significant impact on the performance of the securities. CLO notes' performance may also be impacted either positively or negatively by 1) the manager's investment strategy and behaviour and 2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities.

Additional uncertainty about performance is due to the following

Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions, and CLO's reinvestment criteria after the end of the reinvestment period, both of which can have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the liquidation agent/the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority.

In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

REFERENCES/CITATIONS

[1] Trustee report 15-Oct-2020

[2] Trustee report 16-Nov-2020

[3] Trustee report 15-May-2020

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Angel Jimenez Asst Vice President - Analyst Structured Finance Group Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Raja Iyer Vice President - Senior Analyst Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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