OREANDA-NEWS. Fitch Ratings has assigned Arbour CLO III Limited notes expected ratings, as follows:

Class A-1: 'AAA(EXP)sf'; Outlook Stable
Class A-2: 'AAA(EXP)sf'; Outlook Stable
Class B-1: 'AA(EXP)sf'; Outlook Stable
Class B-2: 'AA(EXP)sf'; Outlook Stable
Class C: 'A(EXP)sf'; Outlook Stable
Class D: 'BBB(EXP)sf'; Outlook Stable
Class E: 'BB(EXP)sf'; Outlook Stable
Class F: 'B-(EXP)sf'; Outlook Stable
Subordinated notes: not rated

The assignment of final ratings is contingent on the receipt of final documents conforming to information already reviewed.

Arbour CLO III Limited is an arbitrage cash flow collateralised loan obligation (CLO). Net proceeds from the issuance of the notes will be used to purchase a EUR400m portfolio of European leveraged loans and bonds. The portfolio is managed by Oaktree Capital Management (UK) LLP. The transaction features a four-year reinvestment period.

KEY RATING DRIVERS
'B+'/'B' Portfolio Credit Quality
Fitch places the average credit quality of obligors in the 'B+'/'B' range. The agency has public ratings or credit opinions on all but seven of the obligors in the identified portfolio. The weighted average rating factor of the identified portfolio is 30.5.

High Recovery Expectations
At least 90% of the portfolio comprises senior secured obligations. Fitch has assigned Recovery Ratings to all assets in the identified portfolio. The covenanted minimum Fitch weighted average recovery rate (WARR) for assigning the final ratings is 69.5%. The WARR of the indicative portfolio is 74.9%.

Diversified Portfolio
The transaction contains a covenant that limits the top 10 obligors to 23% of the portfolio balance. In addition, portfolio profile tests limit exposure to the top Fitch industry to 20% and the top three Fitch industries to 40%. This ensures that the asset portfolio is not exposed to excessive obligor concentration.

Partial Interest Rate Hedge
Between 5% and 15% of the portfolio may be invested in fixed rate assets, while fixed rate liabilities account for 8.75% of the target par amount. The collateral manager will not be able to buy floating rate assets while the test is below 5%.

Limited FX Risk
The transaction is allowed to invest in non-euro-denominated assets, provided these are hedged with perfect asset swaps within six months of purchase. Unhedged non-euro assets may not exceed 2.5% of the portfolio at any time and can only be included if at the trade date of such assets the portfolio balance is above the target par amount when their principal balance converted into euro at spot rate are haircutted by 50%.

Documentation Amendments
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 the structure considers the confirmation to be given if Fitch declines to comment.

RATING SENSITIVITIES
A 25% increase in the expected 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.

DUE DILIGENCE USAGE
All but one of the underlying assets have ratings or credit opinions from Fitch. Fitch has relied on the practices of the relevant Fitch groups to assess the asset portfolio information.

Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.