Carlyle US CLO 2025-2 is issuing an arbitrage cash flow collateralized loan obligation which will be collateralized primarily by broadly syndicated senior secured corporate loans and managed by Carlyle CLO Management. Net proceeds from the secured and subordinated notes will provide financing on a portfolio of $500 million of primarily first lien senior secured leveraged loans.
Moody's Ratings says that the portfolio comprises non-investment-grade broadly syndicated loans and other assets that the manager purchases from and trades in the primary and secondary markets.
The indicative portfolio's average credit quality is B, which is in line with that of recent CLOs, Fitch Ratings says. The indicative portfolio's weighted average rating factor is 24.48. Issuers rated in the B rating category denote a highly speculative credit quality, Fitch says. However, the notes benefit from appropriate credit enhancement and standard U.S. CLO structural features.
Fitch notes that the indicative portfolio comprises 98.42% first-lien senior secured loans with a weighted average recovery rate of 72.64%.
The top five industries represented in the portfolio are banking and finance (14.8%), technology software (12.9%), business services (11%), healthcare providers (7.3%), and industrial and manufacturing (6.8%).
The largest three industries may comprise up to 44.5% of the portfolio balance in aggregate while the top five obligors can represent up to 12.5% of the portfolio balance in aggregate. The level of diversity resulting from the industry, obligor, and geographic concentrations is in line with other recent CLOs, Fitch says.
Moody's says that the CLO must hold a minimum of 90% first-lien senior secured loans and eligible investments. An over-collateralization (OC)-based event of default and the associated liquidation of the portfolio are unlikely because the event of default par ratio trigger of 102.5% is well below the initial OC level of 158.73%, it says.
The CLO prohibits noteholders from surrendering their notes without receiving payments, eliminating the possibility of note cancellation to manipulate OC ratios, according to Moody's. Any notes surrendered for cancellation without payment in return will be deemed outstanding for all over-collateralization test calculations.
The CLO can consent to amendments that could extend the portfolio's weighted average life and result in long-dated assets, Moody's warns. Also, the manager can exchange a defaulted asset for another credit risk asset issued by a different obligor without having to comply with the CLO's long-dated asset restriction. Using principal proceeds, the CLO can purchase up-tier priming debt, which may be defaulted or credit impaired/risk, but are treated as eligible CLO assets at the time of purchase.
The CLO's arranger is Citigroup Global Markets, and the trustee is U.S. Bank Trust Company.
Moody's only assigned a rating to one class of notes issued by Carlyle US CLO 2025-2. It gave an AAA rating to the class A notes worth $315 million, which are due in 2038.
Fitch didn't rate the class A or the subordinated notes. It assigned AA to the B notes, A to the C notes, BBB- to the D notes and BB- to the E notes.
