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Announcement:

Moody's: Reliance on natural hedges for interest rate and foreign currency rate risk is the way forward for new European BSL CLOs

24 Mar 2015

London, 24 March 2015 -- New European broadly syndicated loan (BSL) collateralized loan obligations (CLOs) increasingly rely on natural hedges, says Moody's Investors Service in a sector comment published today.

Moody's report, titled "CLOs Continue to Follow 2.0 Template, With Minor Deviations," is available on www.moodys.com.

"Deal structures increasingly rely on natural hedges against interest rate fluctuations by issuing fixed-rate tranches in amounts that match their expected holdings of fixed-rate assets," says Justyna Kochanska, a Moody's Analyst and author of the report.

Ms. Kochanska observes: "All 2014-vintage CLOs have purely euro-denominated liabilities and use perfect asset swaps, or other derivative contracts, to hedge foreign-currency risk. However, we expect non-euro denominated CLO issuances this year, in the amounts matching the expected holdings of non-euro collateral."

Moody's considers that evolving regulatory regimes and investor preferences will continue to shape European BSL CLO 2.0 structures. While 2014-vintage CLOs generally have similar collateral, structures and credit quality as 2013-vintage deals, structures continue to evolve with altered restrictions in the documentation. For example, some 2014 CLOs prohibit bond holdings to comply with the US Volcker Rule and all incorporate cov-lite limits.

Reinvestment criteria have also evolved slightly, permitting reinvestment from credit-improved sales during the amortization period, while 2013 deals typically do not. 2014-vintage transactions waive trading restrictions more often and have introduced more lenient trading gain reclassification provisions.

Coverage test provisions remain broadly unchanged. However, collateral valuation provisions have evolved, as well as underlying terminologies for defaulted assets, deep discount collateral or excess collateral rated Caa or below.

Collateral manager provisions are weaker for some 2014-vintage deals. Transactions issued last year do not allow note re-pricing, otherwise they contemplate unchanged note cancellation and early redemption options. They also have slightly different event of default triggers and implications.

Subscribers can access this report via this link: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1003548

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Justyna Kochanska
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Thorsten Klotz
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: Reliance on natural hedges for interest rate and foreign currency rate risk is the way forward for new European BSL CLOs
No Related Data.
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