A pool of broadly syndicated speculate-grade, senior secured term loans largely to the media, project power and auto components industries, will secure the Z Capital Credit Partners BSL CLO 2024-1, raising $331.3 million in collateralized loan obligations (CLO).
Santander U.S. Capital Markets, while Z Capital CLO Management is the collateral manager, according to ratings analysts at S&P Global Ratings. Closing soon, Z Capital Credit will begin repaying investors on a quarterly basis beginning on July 16, 2024. Its reinvestment period ends on be. 29, 2028, and has a stated maturity date of April 16, 2036, S&P said.
The deal has total leverage of 7.81%, and par subordination of 40% on the AAA notes, with 14% on the BBB-rated notes, S&P said. The notes have a weighted asset (WA) spread of 4.39%, excluding floors. Further, the rating agency expects a break-even default rate of 66.88% on the AAA notes, and a scenario default rate of 58.48%. The class E notes establishes the floor on the BDR and SDR rates, which come in at 38.12% and 29.85%, respectively.
Subordination—through a capital structure of about five tranches of A through E class notes, according to S&P, with a $37.6 million subordinated piece, that it did not rate. As notes are repaid to investors, credit enhancement in the form of subordination, excess spread and overcollateralization will benefit the notes, according to the rating agency.
The pool consists of 175 obligors, the rating agency said. On average, obligors hold 0.63% of the pool, while the largest holds 1.63%. Further, obligors fall within the media, project power, auto components, electrical equipment and airline industries, accounting for 1.52%, 2.73%, 3.94%, 4.85% and 5.76%, respectively.
With all of these considerations, S&P places preliminary ratings of AAA on the class A notes; AA to the class B notes; A to the C notes; BBB- to the class D notes; and BB- on the class E notes. All notes are pegged to the three-month Secured Overnight Financing Rate (SOFR), with interest rates ranging from the benchmark plus 195 basis points on the class A notes to 735 bps over the benchmark on the class E tranche.
