London, 11 June 2021 -- Moody's Investors Service ("Moody's") announced that it has assigned the
following definitive ratings to refinancing notes issued by Fair Oaks
Loan Funding II Designated Activity Company (the "Issuer"):
....EUR 1,000,000 Class X-R
Senior Secured Floating Rate Notes due 2034, Definitive Rating Assigned
Aaa (sf)
....EUR 213,500,000 Class A-R
Senior Secured Floating Rate Notes due 2034, Definitive Rating Assigned
Aaa (sf)
....EUR 37,600,000 Class B-R
Senior Secured Floating Rate Notes due 2034, Definitive Rating Assigned
Aa2 (sf)
....EUR 21,000,000 Class C-R
Senior Secured Deferrable Floating Rate Notes due 2034, Definitive
Rating Assigned A2 (sf)
....EUR 24,500,000 Class D-R
Senior Secured Deferrable Floating Rate Notes due 2034, Definitive
Rating Assigned Baa3 (sf)
....EUR 19,300,000 Class E-R
Senior Secured Deferrable Floating Rate Notes due 2034, Definitive
Rating Assigned Ba3 (sf)
....EUR 8,700,000 Class F-R
Senior Secured Deferrable Floating Rate Notes due 2034, Definitive
Rating Assigned B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the risks
associated with the CLO's portfolio and structure as described in our
methodology.
The Issuer issued the notes in connection with the re-issuance
of the following classes of notes (the "Original Notes"): Class
X Notes, Class A Notes, Class B-1 Notes, Class
B-2 Notes, Class C Notes, Class D Notes, Class
E Notes due May 2031 previously issued in May 2020.
As part of this reset, the Issuer will increase the target par amount
by EUR 100 million to EUR 350 million. In addition, the Issuer
has amended the base matrix and modifiers that Moody's has taken into
account for the assignment of the definitive ratings.
The Issuer is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured obligations and up to 10%
of the portfolio may consist of senior unsecured obligations, second-lien
loans, mezzanine obligations and high yield bonds. The portfolio
is expected to be approximately 75% ramped as of the closing date
and to comprise of predominantly corporate loans to obligors domiciled
in Western Europe. The remainder of the portfolio will be acquired
during the 6 month ramp-up period in compliance with the portfolio
guidelines.
Fair Oaks Capital Ltd will continue to manage the CLO. It will
direct the selection, acquisition and disposition of collateral
on behalf of the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's 4.2 year
reinvestment period. Thereafter, subject to certain restrictions,
purchases are permitted using principal proceeds from unscheduled principal
payments and proceeds from sales of credit risk obligations or credit
improved obligations. Additionally, the issuer has the ability
to purchase loss mitigation loans using principal proceeds subject to
a set of conditions including satisfaction of the par coverage tests.
Interest and principal amortisation amounts due to the Class X-R
Notes are paid pro rata with payments to the Class A Notes. The
Class X-R Notes amortise by 25% or EUR 250,000.00
over the first four payment dates, starting from the first payment
date.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the debt in order of seniority.
The coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond the end
of the year. While persistent virus fears remain the main risk
for a recovery in demand, the economy will recover faster if vaccines
and further fiscal and monetary policy responses bring forward a normalization
of activity. As a result, there is a heightened degree of
uncertainty around our forecasts. Our analysis has considered the
effect on the performance of European corporate assets from a gradual
and unbalanced recovery in European economic activity.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in December
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1242167.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated debt performance is subject to uncertainty. The debt
performance is sensitive to the performance of the underlying portfolio,
which in turn depends on economic and credit conditions that may change.
The collateral manager's investment decisions and management of the transaction
will also affect the debt performance.
Moody's modelled the transaction using a cash flow model based on the
Binomial Expansion Technique, as described in Section 2.3
of the "Moody's Global Approach to Rating Collateralized Loan Obligations"
rating methodology published in December 2020.
Moody's used the following base-case modeling assumptions:
Target Par Amount: EUR 350,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 3076
Weighted Average Spread (WAS): 3.40%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 45%
Weighted Average Life (WAL): 8.5 years
Moody's has addressed the potential exposure to obligors domiciled in
countries with local currency ceiling (LCC) of A1 or below. As
per the portfolio constraints and eligibility criteria, exposures
to countries with LCC of A1 to A3 cannot exceed 10% and obligors
cannot be domiciled in countries with LCC below A3.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1287634.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed by
Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main
60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's office
that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Hadrien Rogier
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Volker Gulde
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
