KBRA Europe Assigns Preliminary Ratings to MacKay Shields Euro CLO-2 Designated Activity Company
Kroll Bond Rating Agency Europe (KBRA) assigns preliminary ratings to six classes of notes issued by MacKay Shields Euro CLO-2 Designated Activity Company, a cash flow collateralised loan obligation (CLO) back by a diversified portfolio of Euro-denominated corporate loans and bonds.
MacKay Shields Euro CLO-2 Designated Activity Company ("MacKay Shields Euro CLO-2") a CLO managed by MacKay Shields Europe Investment Management Limited ("MacKay Shields Europe" or the "collateral manager"). The CLO will have a 1-year reinvestment period and the legal final maturity is 15 Aug 2033. The ratings reflect initial credit enhancement levels, coverage tests including par value and interest coverage tests an excess spread.
The collateral in MacKay Shields Euro CLO-2 will mainly consist of broadly syndicated leveraged loans and bonds issued by corporate obligors diversified across sectors. The obligors in the portfolio have a K-WARF of 2419, which represents a weighted average portfolio assessment of approximately B. The target portfolio par amount is €208.7 million with exposures to over 90 obligors.
MacKay Shields Europe was established in 2017 as the European CLO management arm and fully owned subsidiary of MacKay Shields LLC, a subsidiary of New York Life Investment Management Holdings. MacKay Shields LLC is a registered investment advisor which currently has $1.4 billion in assets under management across U.S. and European leveraged loan strategies, including 1 actively managed Euro CLO.
The social and economic fallout from the novel coronavirus (COVID-19) pandemic will impact different corporate sectors to varying degrees but broadly, we expect intense pressure on certain cyclical and other non-defensive sectors, with the adverse effects broadening and deepening as the economic dislocation continues. To address this, KBRA considered several scenarios to assess the impact of potential credit migration due to COVID-19.
The preliminary ratings on the Class X, A, and B Notes consider the timely payment of interest and ultimate payment of principal by the applicable stated maturity date, while its preliminary ratings on the Class C, D, and E notes consider the ultimate payment of interest and principal.
KBRA analysed the transaction using Structured Credit Global Rating Methodology published on 13 March 2020 and the and the Global Structured Finance Counterparty Methodology published on 8 August 2018.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the EU Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the EU Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
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