Fitch Ratings downgraded four senior tranches from three European CLOs of leveraged loan transactions.
The notes affected included the Class A2 notes from Global Senior Loan Index Fund I B.V., the Class A notes from Harbourmaster CLO 3 Ltd. and the Class A2 and A3 notes from Harbourmaster Pro-Rata CLO 2 B.V.
The rating agency noted that the key risks for Harbourmaster 3 is a long-dated bucket, containing assets maturing after the deal's legal maturity in 2014, which has increased to 17% from 10% in July 2010.
Fitch said there is also uncertainty surrounding the refinancing of the underlying assets in 2013 and 2014 — approximately 35% of the portfolio assets mature in 2014 and more than 40% mature in 2013.
"If the assets amend and extend their maturity as currently observed for some leveraged loan borrowers, this would expose Harbourmaster 3 to market risk, as these long-dated assets would have to be liquidated," analysts said in a report.
As a result, the agency has downgraded the class A note of the deal to 'BB-sf' from 'BBsf'.
Fitch also downgraded Harbourmaster PR 2's Class A2 and class A3 notes by one notch and GSLIF's class A2 notes by one category.
Fitch said that these portfolios have overall not suffered credit deterioration since the last review, but the current credit enhancement levels are lower than comparable CLOs. The agency believes the current level of protection through subordination was not commensurate with the previous ratings.
Fitch said it also affirmed 184 CLO tranches based on the stabilization and improvement of the underlying assets performance over the past year.
According to the rating agency, the average 'CCC' exposure of the CLO portfolios has decreased to 8% from 12% in July 2010. The current defaults in the average CLO portfolio have decreased to 0.4% from 1.4% in July 2010.
