ARB HOLDINGS LIMITED
Fitch Ratings has upgraded BlackRock European CLO VII DAC's class D-R and F notes and affirmed the class
The class B-1-R through F notes have been removed from Under Criteria Observation. The Rating Outlooks for all classes remain Stable.
RATING ACTIONS
Entity / Debt
Rating
Prior
BlackRock European CLO VII DAC
A-R XS2304369247
LT
AAAsf
Affirmed
AAAsf
B-1-R XS2304370096
LT
AAsf
Affirmed
AAsf
B-2-R XS2304370682
LT
AAsf
Affirmed
AAsf
C-1-R XS2304371227
LT
Asf
Affirmed
Asf
C-2-R XS2304371904
LT
Asf
Affirmed
Asf
D-R XS2304372548
LT
BBBsf
Upgrade
BBB-sf
E XS1904675110
LT
BBsf
Affirmed
BBsf
F XS1904675383
LT
Bsf
Upgrade
B-sf
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
BlackRock European CLO VII DAC is a cash flow CLO comprised of mostly senior secured obligations. The transaction is actively managed by
KEY RATING DRIVERS
CLO Criteria Update: The rating actions mainly reflect the impact of the recently updated 'Fitch CLOs and Corporate CDOs Rating Criteria' and the shorter risk horizon incorporated in Fitch's updated stressed portfolio analysis. The analysis considered cash flow modelling results for the stressed portfolio based on the
The rating actions for all notes, except for the class A-R notes, are one notch lower than the model-implied ratings produced from Fitch's updated stressed portfolio analysis for all classes of notes. The deviation reflects the remaining long reinvestment period until
The transaction has two matrices, based on a 16% and 23% top 10 obligor concentration limit. Fitch's updated stressed portfolio analysis applied the agency's collateral quality matrix specifying the 16% top 10 obligor limit as the agency viewed this as the most rating relevant. Additionally, Fitch also reduced the weighted average spread (WAS) by 40 basis points at each point on the matrix to account for the WAS definition in the transaction documents.
The Stable Outlooks on each class of notes reflect Fitch's expectation that the classes have sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio in stress scenarios commensurate with such class's rating.
Stable Asset Performance: The transaction metrics indicate stable asset performance. The transaction is passing all coverage tests, collateral quality tests and portfolio profile tests. Exposure to assets with a Fitch-derived rating of 'CCC+' and below is 3.9% excluding non-rated assets, as calculated by Fitch.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of the transaction's underlying obligors in the 'B'/'B-' category. The weighted average rating factor (WARF) as calculated by the trustee was 32.6, which is below the maximum covenant of 35.0. The WARF, as calculated by Fitch under the updated criteria, was 24.3.
High Recovery Expectations: Senior secured obligations comprise 95.6% of the portfolio as calculated by the trustee. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch WARR reported by the trustee was 63.5%, against the covenant at 61.2%.
Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is 11.3%, and no obligor represents more than 1.3% of the portfolio balance, as reported by the trustee.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
An increase of the rating default rate (RDR) at all rating levels by 25% of the mean RDR and a decrease of the rating recovery rate (RRR) by 25% at all rating levels in the stressed portfolio will result in downgrades of up to two notches, depending on the notes;
Downgrades may occur if the build-up of the notes' credit enhancement (CE) does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A reduction of the RDR at all rating levels by 25% of the mean RDR and an increase in the RRR by 25% at all rating levels in the stressed portfolio would result in an upgrade of up to four notches, depending on the notes;
Except for the tranche already at the highest 'AAAsf' rating, upgrades may occur in the case of better than expected portfolio credit quality and deal performance that leads to higher CE and excess spread available to cover losses in the remaining portfolio.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
DATA ADEQUACY
BlackRock European CLO VII DAC
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or
Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
APPLICABLE CRITERIA
CLOs and Corporate CDOs Rating Criteria (pub.
Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub.
Global Structured Finance Rating Criteria (pub.
Structured Finance and Covered Bonds Country Risk Rating Criteria (pub.
Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub.
Structured Finance and Covered Bonds Counterparty Rating Criteria (pub.
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Multi-Asset Cash Flow Model, v2.11.0 (1)
Portfolio Credit Model, v2.14.0 (1)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ENDORSEMENT STATUS
BlackRock European CLO VII DAC EU Endorsed,UK Endorsed
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