DBRS Reviews and Confirms Cadogan Square CLO XIII D.A.C.

DBRS Ratings Limited (DBRS) confirmed the ratings assigned to the Senior Funding Facility (SFF) and the Senior Mezzanine Funding Facility (SMFF; together with the SFF, the Facilities) of Cadogan Square CLO XIII D.A.C. (the Borrower):

-- SFF rated A (high) (sf)
-- SMFF rated BBB (high) (sf)

The rating of the SFF addresses the timely payment of interest and ultimate payment of principal payable on or before the Warehouse Maturity Date. The rating of the SMFF addresses the ultimate payment of interest and principal payable on or before the Warehouse Maturity Date.

The confirmation follows a review of the transaction based on the amendments that became effective on 3 December 2018. The amendments include the increase of the total Senior Note Commitment, Senior Mezzanine Note Commitment and the total Subordinated Note Commitment, and were added in the form of an additional matrix points to the capital structure. In addition, the warehouse will allow sub-participation of assets to Barclays, the Participant. Proceeds of the participations will be used in accordance with documents (priority of payments).

DBRS analysed a covenant matrix structure where the total warehouse notional amount will be EUR 300 million with the equity notional amount increasing to EUR 62.50 million. The last drawing point in the covenant matrix is expected to have a total capitalisation of EUR 300 million, which constitutes an SFF size of EUR 206.25 million, an SMFF size of EUR 31.25 million and the remaining EUR 62.50 million in equity. The equity size increases to EUR 62.50 million from EUR 2.5 million. The SMFF size can be increased or reduced to provide credit enhancement to the SFF. As the size of the capital structure increases, collateral quality tests, such as the DBRS recovery rate, weighted-average (WA) spread and WA coupon also change.

As of 29 November 2018, the transaction portfolio consisted of EUR 208 million of collateral obligations extended to 74 borrowers.

DBRS used the publicly available CLO Asset Model to determine a lifetime pool default rate at the required rating levels for each drawing point. The CLO Asset Model takes key covenants of the portfolio to create a stressed analysis pool for each level of the drawing schedule based on the covenants. The CLO Asset Model employs a Monte Carlo simulation to determine cumulative default rates (or hurdle rates) at each rating stress level. Break-even default rates on the Facilities were determined in accordance with DBRS’s “Cash Flow Assumptions for Corporate Credit Securitizations” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs and CDOs of Large Corporate Credit”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include the Borrower, the CM and the Senior and Mezzanine Lender.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 1 November 2018, when DBRS finalised the provisional ratings of the Facilities.

The lead analyst responsibilities for this transaction have been transferred to Mudasar Chaudhry.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

Drawdown Structure of total EUR 400 million warehouse:
For the last matrix point, warehouse notional is expected to be EUR 300 million.
-- An increase in the Risk Score by 15% would have no impact on the current ratings of the SFF and would have no impact on the current rating of the SMFF.
-- An increase in the Risk Score by 30% would have no impact on the current ratings of the SFF and would have no impact on the current rating of the SMFF.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Mudasar Chaudhry, Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 4 October 2018

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating CLOs and CDOs of Large Corporate Credit
-- Legal Criteria for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Interest Rate Stresses for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.