Fitch Ratings said today it does not expect to either upgrade or downgrade any European collateralized loan obligations (CLOs) for the remainder of 2013.
The agency recently completed a review of the 27 rated European CLOs it rates, and it affirmed the existing ratings of all but two of the transactions. The affirmations were predominantly driven by increased credit protection for the notes coupled with stable asset performance over the past year.
Fitch did revise its outlooks on some of the mezzanine and junior notes, to ‘stable’ from ‘negative,’ to reflect their reduced vulnerability to refinancing risk over the next 18 months. That is because average maturity profiles have been pushed out as a result of amendments and extensions of underlying loans, borrowers tapping the bond market and, to a certain extent, manager trading activity.
The only two deals to see ratings changes were Harbourmaster CLO 4 B.V. and Cheyne Credit Opportunity CDO. The mezzanine and junior notes of Harbourmaster CLO 4 B.V. were downgraded due to the excess spread compression in the transaction magnified by the expiration of the interest rate hedge between fixed-rate liabilities and floating-rate assets. The junior notes of Cheyne Credit Opportunity CDO I were upgraded due to increased credit enhancement levels resulting from structural deleveraging.
Until a few months ago, there hadn’t been any new European CLOs issued since the financial crisis, so most of the deals Fitch tracks are legacy transactions.