Carlyle US CLO 2022-4 is a managed cash flow collateralized loan obligation (CLO) backed by a $550 million portfolio of non-investment-grade broadly syndicated loans and other assets that the manager purchases from and trades in the primary and secondary markets, Moody's Ratings says.
Carlyle US CLO 2022-4 will issue several classes of notes to refinance all the secured debt of the existing transaction. The notes will receive quarterly interest payments and, after the reinvestment period, principal payments, in order of seniority. In addition, the CLO has subordinated notes that receive payments from residual interest and principal proceeds, according to Moody's.
The loan portfolio consists of 95.68% first-lien senior secured leveraged loans, Fitch Ratings says. Up to 7.5% of the portfolio may consist of second lien loans, unsecured loans and permitted non-loan assets.
The deal closing date is July 25, 2024, and the legal final maturity date is July 25, 2036.
The performance of the refinancing notes is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change, Moody's points out. The rating agency has assigned a provisional AAA rating to $341 million of class A-1-R notes with an assumed coupon of three months SOFR plus 1.38%. It did not rate the remaining notes.
Fitch has assigned expected ratings of AAA to the classes A-1-R and A-2-R notes, AA to class B-R, A to C-R, BBB to classes D-1-R and D-2-R, and BB to class E-R. The $40.6 million of subordinated notes were not rated by Fitch or Moody's.
Fitch says that the average credit quality of the indicative portfolio is 'B/B-', which is in line with that of recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality. However, the notes benefit from appropriate credit enhancement and standard U.S. CLO structural features, Fitch says.
Fitch flags the portfolio composition as negative, since the largest three industries may comprise up to 42.33% of the portfolio balance in aggregate, while the top five obligors can represent up to 12.5% of the portfolio balance in aggregate.
However, the level of diversity resulting from the industry, obligor and geographic concentrations is in line with other recent CLOs, Fitch says. The top five industry concentrations are technology software at 15.9%; business services general at 14.3%; banking and finance at 12.1%; healthcare providers at 6.6%; and gaming and leisure and entertainment at 6.2%.
In addition to the issuance of the refinancing notes and the other classes of secured notes, a variety of other changes to transaction features will occur in connection with the refinancing, according to Moody's. These include extension of the reinvestment period; extensions of the stated maturity and non-call period; changes to certain collateral quality tests; and changes to the overcollateralization test levels.
