A portfolio comprised of first-lien, middle market loans extended to U.S. borrowers will secure the Golub Capital Partners CLO 59 (M) transaction, slated to issue $1.0 billion in collateralized loan obligations.
Wells Fargo Securities is the arranger on the deal, which is expected to close on December 22, and whose structure features a senior overcollateralization (OC) test and an initial senior (OC) test cushion of 10%. GC Investment Management will manage the transaction, according to Fitch Ratings.
Golub has a four-year reinvestment period, and a noncall period of two years, Fitch said.
Fitch expects to assign a ‘AAAsf’ rating to the $598.5 million class A-1 notes, which have a stable outlook. While the indicative portfolio has an average credit quality of ‘B’ or ‘B-,’ Fitch also points out that the class A-1 notes have a 43.0% credit enhancement level. The notes also feature a modeled interest rate of 1.49% over the three-month Libor, and a legal final maturity of January 2034.
Golub CLO 59 (M) has a weighted average recovery rate (WARR) of 65.1%. Among other credit positives, the deal’s three largest industries may constitute up to 52.0% of the portfolio balance in aggregate, while the top five obligors can represent up to 15% of the portfolio’s aggregate balance.
In Fitch’s ‘AA’sf’ stress-test scenarios, the Golub notes can withstand default rates up to 71.2%, assuming recovery rates of 30.1%.
No single industry is allowed to breach the maximum concentration of 20% of the portfolio balance, and the cap for the second largest concentration amount for any single industry is 17%, Fitch said.
Fitch noted that Golub calls for a level of industry, obligor and geographic diversity that are in line with other recent U.S. middle-market CLOs, Fitch said. Technology software (12.4%), healthcare devices (11.1%), technology hardware (9.4%), consumer products (7.3%) and healthcare providers (6.4) comprise the deal’s top five industry concentrations.
Among other concentration limits are a 25% maximum of covenant-lite loans, and a minimum of 85% of U.S. obligors.
While first-lien loans will comprise 100% of the portfolio initially, Golub CLO 59 (M) will allow at most a 4% concentration of second-lien, first-lien lash-out, senior syndicated secured loans and permitted assets that are not loans, according to Fitch.
