OREANDA-NEWS. Fitch Ratings has assigned Harvest CLO XI Limited notes final ratings, as follows:

Class A-1: 'AAAsf'; Outlook Stable
Class A-2: 'AAAsf'; Outlook Stable
Class B-1: 'AA+sf'; Outlook Stable
Class B-2: 'AA+sf'; Outlook Stable
Class C: 'A+sf'; Outlook Stable
Class D: 'BBBsf'; Outlook Stable
Class E: 'BBsf'; Outlook Stable
Class F: 'B-sf'; Outlook Stable
Subordinated notes: not rated

Harvest CLO XI Limited is an arbitrage cash flow collateralised loan obligation (CLO).

KEY RATING DRIVERS

'B'/'B-' Portfolio Credit Quality
Fitch expects the average credit quality of obligors to be in the 'B'/'B-' range. The agency has credit opinions or public ratings on the entire indicative portfolio. The Fitch-weighted average rating factor (WARF) of the initial portfolio is 32.9, compared with the covenanted maximum of 33.5 for the ratings. The asset manager is able to purchase loans only. Bond purchases are prohibited by the eligibility criteria to comply with Volcker rule legislation.

High Recovery Expectations
Ninety per cent of the portfolio will comprise senior secured loans. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured, and mezzanine assets. Fitch has assigned Recovery Ratings (RR) to all of the assets in the indicative portfolio. The Fitch-weighted average recovery rating (WARR) of the initial portfolio is 70.7, compared with the covenanted minimum of 68.0.

Tighter Concentration Covenants
Senior secured loan obligor exposure is limited to 2.5% of the aggregate collateral balance, while unsecured senior and second lien/mezzanine exposure is subject to a 1.5% limit (both without exceptions). The maximum Fitch industry exposure is restricted to 15% for the largest industry, and 35% for the top three. These covenants compare favourably with other transactions.

Limited Interest Rate Risk
Unhedged fixed-rate assets cannot exceed 5% of the portfolio, while the sum of the class A-2 and B-2 fixed-rate liabilities represent approximately 4% of the total. Consequently, interest rate risk is naturally hedged for most of the portfolio.

TRANSACTION SUMMARY

Net proceeds from the note issue are being used to purchase a EUR400m portfolio of European leveraged loans. The portfolio is managed by 3i Debt Management Investments Limited. The transaction has a four-year re-investment period scheduled to end in 2019.

The transaction documents may be amended subject to rating agency confirmation or noteholder approval. Where rating agency confirmation relates to risk factors, Fitch will analyse the proposed change and may provide a rating action commentary if the change has a negative impact on the ratings. Such amendments may delay the repayment of the notes as long as Fitch's analysis confirms the expected repayment of principal at the legal final maturity.

If in the agency's opinion the amendment is risk-neutral from a rating perspective Fitch may decline to comment. Noteholders should be aware that confirmation is considered to be given if Fitch declines to comment.

RATING SENSITIVITIES

A 25% increase in the obligor default probability would lead to a downgrade of up to three notches for the rated notes.

A 25% reduction in expected recovery rates would lead to a downgrade of up to four notches for the rated notes.