Kroll Bond Rating Agency Europe (KBRA) assigns preliminary ratings to five classes of notes issued by RRE 5 Loan Management DAC (RRE 5), a cash flow collateralised loan obligation (CLO) backed by a diversified portfolio of Euro-denominated corporate leveraged loans and bonds.
RRE 5 is a CLO managed by Redding Ridge Asset Management (UK) LLP ("RRAM Europe" or the "collateral manager"). The CLO will have an approximate 3-year reinvestment period with a legal final maturity of 15 October 2033. The ratings reflect initial credit enhancement levels, coverage tests including par value and interest coverage tests an excess spread.
The collateral in RRE 5 will mainly consist of broadly syndicated leveraged loans and bonds issued by corporate obligors diversified across sectors. A minimum of 90% of the portfolio will consist of senior secured obligations. The obligors in the portfolio have a K-WARF of 2477, which represents a weighted average portfolio assessment of approximately B. The target portfolio par amount is €400.0 million with exposures to over 120 obligors.
RRAM UK is a UK-based subsidiary of Redding Ridge Asset Management LLC, an independent asset management company established and seeded by Apollo Global Credit Management, LLC (Apollo) in 2016 to manage CLOs. The RRAM UK management arm currently manages €2.0 billion in assets across five European CLOs.
The social and economic fallout from the novel coronavirus (COVID-19) pandemic will impact different corporate sectors to varying degrees but broadly, we expect pressure on corporate credit portfolio quality. KBRA assessed the risks of near-term potential credit deterioration across by increasing the portfolio’s KBRA Weighted Average Rating Factor (K-WARF).
The preliminary ratings on the Class A-1 and A-2 Notes consider the timely payment of interest and ultimate payment of principal by the applicable stated maturity date, while its preliminary ratings on the Class B, C, and D notes consider the ultimate payment of interest and principal.
KBRA analysed the transaction using Structured Credit Global Rating Methodology published on 13 March 2020 and the Global Structured Finance Counterparty Methodology published on 8 August 2018.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the EU Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the EU Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA Europe
KBRA Europe is a full-service credit rating agency (CRA) registered with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency, LLC (KBRA) is a CRA registered as an NRSRO with the U.S. Securities and Exchange Commission and is a certified CRA with ESMA. KBRA is also recognized by the U.S. National Association of Insurance Commissioners as a Credit Rating Provider and is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. Kroll Bond Rating Agency Europe is located at 6-8 College Green, Dublin 2, Ireland.
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