Carlyle Euro CLO 2025-1 DAC is issuing €508.4 million ($590 million) of European cash flow CLO notes.
The notes are backed by a €500 million ($580 million) portfolio of well-diversified, broadly syndicated European loans, which is managed by Carlyle CLO Management Europe, a Carlyle Group subsidiary.
According to Fitch Ratings, the pool consists of mainly senior secured obligations (at least 90%) with a component of senior unsecured, mezzanine, second-lien loans and high-yield bonds. The note proceeds have been used to purchase the portfolio.
The notes benefit from credit enhancement provided through the subordination of cash flows, plus excess spread and overcollateralization.
The collateral portfolio's credit quality has a weighted-average rating of B, according to S&P Global Ratings. The ratings agency considers the transaction's legal structure to be bankruptcy remote.
Fitch considers the average credit quality of obligors to be in the B/B' category. The Fitch weighted average rating factor for the portfolio is 24.7.
The portfolio's reinvestment period will end approximately 2.1 years after closing and the non-call period will end one year after closing.
S&P capped its ratings for the class A-2, B and C notes to make allowance for possible deterioration of the transaction's credit risk profile during the reinvestment period, which ends on August 15, 2027.
According to S&P, positive factors in the rating are the collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading.
For Fitch, the diversified asset portfolio is a positive factor for its rating. Deal covenants restrict maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%, it said. Cash flow modelling is also positive.
Both Fitch and S&P gave the notes identical ratings. They rated the Class A-1 notes (€310 million), with credit enhancement of 38%, paying three-month EURIBOR (Euro Interbank Offered Rate) +1.21%, as AAA.
The Class A-2 notes (€55 million), with 27% credit enhancement and 1.85% spread, are rated AA.
The Class B notes (€30 million), with 21% credit enhancement and 2.1% spread, are rated A.
The Class C notes (€35 million), with 27% credit enhancement and 3% spread, are rated BBB-.
The Class D notes (€21.7 million), with 9.66% credit enhancement and 5.2% spread, are rated BB-.
The Class E notes (€15.8 million), with 6.5% credit enhancement and 8.1% spread, are rated B-.
Neither ratings agency rated the subordinated notes worth €40.9 million.
According to the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will permanently switch to semi-annual payments, S&P said.
