Research: Rating Action: Moody’s Assigns Draft Ratings to Six Classes of Bonds to Be Issued by Bosphorus CLO VII Designated Activity Company

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Frankfurt am Main, September 26, 2022 — Moody’s Investors Service (“Moody’s”) announced that it has assigned the following provisional ratings to the bonds to be issued by Bosphorus CLO VII Designated Activity Company (the “Issuer”):

….EUR 242,000,000 Class A covered floating rate notes due 2034, allocated (P)Aaa (sf)

….EUR 46,000,000 Class B Secured Floating Rate Notes due 2034, Attributed (P)Aa2 (sf)

….EUR 20,200,000 Class C Secured Deferred Floating Rate Notes due 2034, Attributed (P)A2 (sf)

….EUR 23,550,000 Class D Secured Deferred Floating Rate Notes due 2034, Attributed (P)Baa3 (sf)

….EUR 25,200,000 Class E Secured Deferred Floating Rate Notes due 2034, Attributed (P)Ba3 (sf)

….EUR 4,100,000 Class F Secured Deferred Floating Rate Notes due 2034, Attributed (P)B3 (sf)

RATINGS RATIONALE

The justification of the ratings is based on a consideration of the risks associated with the portfolio and the structure of the CLO, as described in our methodology.

The Issuer is a managed cash flow CLO. At least 92.5% of the portfolio must be comprised of senior secured bonds and up to 7.5% of the portfolio may be comprised of senior unsecured bonds, junior loans, mezzanine bonds and high yield bonds. The portfolio is expected to be increased by 80% from the closing date and consist mainly of corporate loans to debtors domiciled in Western Europe. The rest of the portfolio will be acquired during the five-month start-up period in accordance with portfolio guidelines.

Cross Ocean Adviser LLP will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the issuer and may engage in trading activities, including discretionary trading, during the one-year reinvestment period of the transaction. Thereafter, subject to certain restrictions, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from the sale of impaired bonds or enhanced bonds.

In addition to the six classes of bonds rated by Moody’s, the Issuer will issue €37.5 million of unrated subordinated notes.

The transaction incorporates interest and face value coverage tests which, if triggered, divert interest and principal proceeds to repay the notes in order of seniority.

Methodology behind the rating action:

The main methodology used in these ratings is “Moody’s Global Approach to Rating Collateralized Loan Obligations” published in December 2021 and available on https://ratings.moodys.com/api/rmc-documents/74832. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of ratings:

The performance of the Notes rated is subject to uncertainty. The performance of the ratings is sensitive to the performance of the underlying portfolio, which in turn depends on changing economic and credit conditions. The Collateral Manager’s investment decisions and the management of the transaction will also affect the performance of the Notes.

Moody’s modeled the transaction using a cash flow model based on the binomial expansion technique, as described in Section 2.3 of Moody’s Global Approach to Rating Collateralized Loan Obligations Rating Methodology released in December 2021.

Moody’s used the following basic modeling assumptions:

Nominal amount: EUR 400,000,000

Diversity score: 45

Weighted Average Rating Factor (WARF): 2850

Weighted Average Deviation (WAS): 4.10%

Weighted Average Coupon (WAC): 4.00%

Weighted average recovery rate (WARR): 44.75%

Weighted Average Life (WAL)*: 5.5 years

* The base case weighted average life is 6 years, but we have assumed a WAL of 5.5 years because according to the transaction documents the weighted average life will increase to 4.5 years at the end of the one-year reinvestment period and will decrease linearly thereafter.

Moody’s has addressed potential exposure to obligors domiciled in countries with a local currency cap (LCC) of A1 or less. In accordance with the constraints of the portfolio and the eligibility criteria, exposures to countries whose LCC is between A1 and A3 cannot exceed 10% and obligors cannot be domiciled in countries whose LCC is lower than A3 .

Further details regarding Moody’s analysis of this transaction can be found in the related pre-sale report, soon to be available on Moodys.com.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

Further information on representations, warranties and enforcement mechanisms available to investors can be found at https://ratings.moodys.com/documents/PBS_1342708.

The analysis relies on an assessment of the characteristics of the collateral to determine the distribution of collateral losses, ie the function correlated to an assumption about the probability of occurrence of each level of possible collateral losses. Secondly, Moody’s assesses each possible collateral loss scenario using a model that reproduces the relevant structural characteristics to deduce the payouts and therefore the ultimate potential losses for each rated instrument. The loss incurred by a rated instrument in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows. Moody’s weights the impact on rated instruments based on its assumptions of the likelihood of events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Pasquale Riviezzo
Associate Senior Analyst
Structured Finance Group
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Thorsten Klotz
DG – Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Release Office:
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

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